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Why Subchapter 5 Bankruptcy Might Be Key In Small Businesses Surviving COVID-19

The Small Business Reorganization Act (SBRA) was signed into law in August 2019.  The new law was set to shore up the hole that had been created back in 2005 when the Bankruptcy Abuse Prevention and Consumer Protection Act was unveiled.  The 2005 act significantly increased reporting requirements under Chapter 11 which left many business owners feeling that Chapter 11 was now too complicated to apply for.  Additionally, many of the small business owners who did brave the complicated application process found they simply did not qualify under the new Chapter 11 requirements.

The SBRA went into effect in February of 2020. While unveiling the plan just ahead of the economic impact of COVID 19 in March was unplanned, the timing has led Subchapter 5 to being much more than a simple “gap” filler in bankruptcy law; it may very well be the one stroke of serendipity that keeps many small businesses afloat in these troubled economic times. 

Important Details that make Subchapter V “Small Business Friendly”

Ownership and Management Remains with the Business Owner   

  • In most instances, small business owners can continue to own and run their businesses.
  • The debtor continues to manage their own affairs and are only “monitored” by a Special Trustee who will evaluate the business’s progress
  • A committee of Creditor’s in most situations is no longer appointed.

Cost savings and flexibility with Subchapter V

  • No disclosure statement requirement saves small business owners money and substantially reduces paperwork in the filing
  • Unlike a traditional Chapter 11 filing, the fees associated with a Subchapter 5 can be spread out over the plan’s term.
  • No requirement to pay U.S. Trustee quarterly fees.

Today is a difficult time for business owners. Aside from a world full of the unexpected, there are substantial changes in the law to be considered.  Now more than ever it is vital for business owners who are struggling with their debt obligations to consult with a bankruptcy attorney.

Reach out to Law 4 Small Business today. We offer Bankruptcy Consultations .  Your business may be down during COVID, but maybe its not out.  Our attorneys will help you determine the best path for your business’s recovery and if Subchapter V is a good fit for your situation.  

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot company.

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