Bankruptcy Protection Tailored for Small Businesses
The Small Business Reorganization Act of 2019 (SBRA), effective as of February 19, 2020, was enacted to provide Main Street business debtors with a more streamlined path for restructuring their debts.
In response to the economic distress caused by the COVID-19 coronavirus pandemic, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act; P.L. 116-136) was enacted on March 27, 2020, increasing the eligibility limit for small businesses looking to file under SBRA’s subchapter V from $2,725,625 of debt to $7,500,000. The threshold will return to $2,725,625 after 1 year.
The SBRA attempts to find a balance between chapter 7 and chapter 11 bankruptcies for small-business debtors by lowering costs through implementation of a streamlined reorganization process, elimination of the absolute priority rule and § 1129(a)(10), and the possible modification of certain mortgages. The SBRA represents the most significant change to Bankruptcy law since 2005 and is meant to better enable small businesses to survive bankruptcy and retain control of their operations.
The key provisions of the SBRA provide for significant cost savings over a typical Chapter 11 filing by eliminating the creditors’ committee which eliminates all associated professional fees and removes the obligation for the debtor to pay the US Trustee fees.
Additionally, the entire process is now more streamlined for the debtor by allowing for a less complex plan of reorganization, eliminating a requirement that a separate disclosure statement be submitted, and there are now pre-drafted forms available that can additionally cut down costs.
The SBRA makes it possible for equity interests to be maintained without agreement from creditors who may receive less than a full recovery on account of their claims and the SBRA also allows for the small business debtor to modify a mortgage secured by a residence if the underlying loan was not used to acquire the residence and was used primarily in connection with the debtor’s business.
If you are considering bankruptcy as an option of viability, the Kuiper Law Firm would appreciate the opportunity to discuss your options and the issues you could face. Our Attorneys are licensed in multiple states, including New Mexico, Wyoming, Utah, North Dakota, Colorado, Texas and Oklahoma. We have the experience and insight to deliver efficient, creative and cost-effective solutions and counsel to allow you to navigate an effective reorganization during these difficult economic times.