A Helpful Bankruptcy Code Revision

Our office has handled numerous bankruptcy cases for small businesses and small business owners.  A new modification to the United States Bankruptcy Code (effective February 19, 2020) will provide a tool that, in my opinion, will fill a gap that existed in the bankruptcy code.  The new law creates a new subchapter of Chapter 11 (Subchapter V) which has the potential to act something like a Chapter 13 case for individuals with relatively high debt.

Say what you want about President Trump, he certainly is no stranger to the bankruptcy laws.  Six Trump companies have apparently filed for bankruptcy protection under his watch.  Now, his critics may say that is a result of some kind of mismanagement but President Trump is quite correct when he has said that his companies availed themselves of certain laws that were available to help companies reorganize.  Chapter 11 has always been, and still is, the realm of big business bankruptcy.  There is nothing wrong with using Chapter 11 in situations where that kind of action is warranted.

What President Trump no doubt learned in his experiences with Chapter 11 is that it was a costly, time consuming, complicated process with very little differentiation for the owner of a $100,000 business or the owner of a $1,000,000,000 business.  In this political battlefield of polarization between Democrats and Republicans there was a bi-partisan recognition that Chapter 11 needed a makeover.  Legislation was introduced in the House of Representatives by two Democrats and two Republicans.  The bill passed the House, passed the Senate, and was signed by the President.  So, he we are and what does it mean?

The Small Business Reorganization Act of 2019 creates a streamlined process for debtors with debts not exceeding $2,725,625.  There are reductions in paperwork and in the way that a reorganization plan could be approved.  This reduces costs and creates a far better playing field for the small business debtor who is facing financial difficulty. 

In the past many small business owners would have had to close their doors or file Chapter 7 bankruptcy to liquidate assets.  Chapter 13 was often not available to business owners because there are rather strict debt limits that make a debtor ineligible for that relief.  That is no longer the case.  We are already looking at cases that are likely to be filed under the new Subchapter V of Chapter 11.  Situations that seemed utterly hopeless now have a new potential avenue for resolution.  If you are a business owner with cash flow issues, this new law may the best path for you.