Florida businesses were hit hard by the pandemic. While some have figured out ways to gain alternative revenue streams, others struggle to get by. Many businesses that face debt burdens may file for Chapter 11 bankruptcy.
Unfortunately, some may not be able to afford it. Chapter 11 bankruptcy can come with expensive filing costs and burdensome reporting fees. Small businesses aren’t always able to afford those. However, the Small Business Reorganization Act of 2019 (SBRA) introduced Chapter 5 bankruptcy, which could be a more efficient alternative for debt reorganization.
How can businesses qualify?
Businesses with secured and unsecured debts totaling $7.5 million or less will likely need the following to file:
- A statement of operations
- Recent balance sheets
- Federal tax returns (or a sworn statement saying the document does not exist)
- A cash flow statement
New updates could help reduce filing costs
Chapter 5 bankruptcy is quite similar to Chapter 11. However, it offers a few extra benefits. It aims to reduce costs and increase efficiency, giving struggling small businesses a better chance to get back on track. It does this by offering a “stay of proceedings.” That means if a business faces creditor lawsuits or eviction notices, Chapter 5 can stop all legal action until a business’s repayment period expires.
Chapter 5 eliminates creditor committees
With Chapter 11 bankruptcy, creditors typically must approve a bankruptcy plan, placing a more substantial burden on financially struggling businesses. However, Chapter 5 eliminates the need for creditor committees. If creditors and businesses disagree over the proposed plan, a judge can help them formulate one in bankruptcy court.
New provisions provide hope for small businesses
Many small businesses are struggling to get by. If businesses want to file for Chapter 5 bankruptcy, they must submit the proper paperwork within 90 days. An experienced bankruptcy attorney can help them get everything they need.