The Small Business Reorganization Act

On Behalf of | Jun 26, 2020 | Chapter 11 and Chapter 7 business bankruptcies |

The Small Business Reorganization Act came into force in February this year (2020). It makes it easier and cheaper for small businesses to file for Chapter 11 bankruptcy.

A small business needing to file for bankruptcy has two options: Chapter 7 or Chapter 11. Filing for Chapter 7 is the end of your business. You are allowed to keep some assets, which are exempt from your bankruptcy. A trustee is appointed to sell your other assets and divide the money raised between anyone you owe money.

Chapter 11 allows you to keep your business. Rather than being the end of it all, it gives you a second chance. You are required to pay your debtors but given more time to do so. You restructure your debts, and the court supervises you. There are strict requirements you must meet and regular reporting you must do, which can make it costly. Your creditors are also required to approve your repayment plan — which can lead to expensive delays if they cannot reach an agreement between themselves.

The new act adds a Subchapter V to Chapter 11 bankruptcy. Instead of reporting so much to the court, you will have a trustee’s supervision. They will not be in control of your assets as they are in a Chapter 7 bankruptcy, but are there to guide you and ensure you stick to the plan. Your creditors do not need to approve your payment plan, provided the court finds it fair. 

If you wish to use this new option, your total debts cannot exceed $2,725,625. Subchapter V speeds up the process, and the court will hear you within 60 days of filing.