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Small Business Reorganization Act benefits Chapter 11 filers

The benefits of filing your small business for Chapter 11 bankruptcy have always been fleeting. Since amendments were made to the Bankruptcy Code in 2005, it has become increasingly difficult for small business owners to reorganize under Chapter 11, but change has arrived.

On August 23, 2019, President Donald Trump signed into law, the Small Business Reorganization Act. The overall scope of the act is to make increase the speed and lower the cost of small business bankruptcies. There is one caveat: only business debtors, who have less than $2,725,625 in secured and unsecured debt, can qualify.

This act also includes the following:

  • A trustee must be appointed and serve as the trustee for the small business’ bankruptcy estate. The trustee will manage the reorganization and monitor the debtor’s completion of the reorganization plan.
  • The reorganization process will be expedited by removing the procedural burden and costs that often come with reorganization. Only the debtor can propose a plan, and small business owners will not have to gain approval of a separate disclosure statement or obtain votes to confirm the reorganization plan.
  • The “New Value Rule” will be eliminated. This essentially leads to the act now requires that the plan fairly and equitably provides that the debtors estimated disposable income is applied to the payments set by the reorganization plan.
  • Small business debtors can now modify their residential mortgages, if qualifying actions are taken.

Of course, this is my complex law, can be hard to fully grasp and includes more provisions, which is why consulting with a licensed bankruptcy attorney can be beneficial to guide you through the process.

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