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 In the past, chapter 11 reorganization was typically out of reach for most small businesses leaving no choice but to shut down and wind down the business or file a chapter 7 liquidation bankruptcy.  Chapter 11 bankruptcy was designed for large corporations with complex operations, not for small businesses which are usually run by a single owner or family.  The traditional chapter 11 gives extensive power over the process to secured creditors.  Large corporations usually have multiple secured creditors, while small businesses may only have one or two, giving those creditors power to make or break the chapter 11 process for a small business owner.  In February 2020 the Small Business Reorganization Act of 2019 (Subchapter V) went into effect, with the intent to remedy the problems small businesses usually faced in the chapter 11 process.  Ironically, this coincided with the Covid-19 pandemic, which has hit small businesses like no other economic crisis in the past.

Unlike the past when many small businesses were forced to wind down, they can now reorganize or restructure their small business under the Small Business Reorganization Act, enabling them to stay in business.  Rather than facing massive administrative costs and difficult chapter 11 requirements, the Small Business Reorganization Act provides for incentives and easier procedures to facilitate consensual plans between small business owners and creditors.  Under the new act, a trustee is appointed to help in the facilitation process.  Additionally, the new act provides for a streamlined process that moves much faster than cases not filed under the new act.  Small Business debtors do have a choice and must opt in to utilize the Subchapter V process upon filing the small business bankruptcy.

Many small business owners owe Small Business Administration loans (SBA) in which the small business owner used their personal homes as collateral.  The new act provides for the ability to modify the liens on the owner's home in certain situations. 

Some of the highlights of the Small Business Subchapter V Bankruptcy include:

  • Applies to businesses with $2.7 million or less in liabilities, raised to $7.5 million under coronavirus stimulus;
  • Owners continue operating their business while in the court process;
  • Owners can retain equity after exiting bankruptcy;
  • Owners can modify residential mortgages if home was collateral for a business loan;
  • Faster turnaround to save time and minimize legal fees;
  • Owners generally have three to five years to repay creditors; and
  • Creditors can be paid based on a business's projected income.

In the wake of the Covid-19 pandemic and economic shutdown, it is anticipated that many small businesses will never reopen.  Hopefully, the Small Business Reorganization Act will allow many small businesses facing permanent closure to instead reorganize and recover from the economic side affects of the Covid-19 Pandemic.

If you have a small business and are struggling, a small business reorganization chapter 11 bankruptcy may help you keep your business open.  Before throwing in the towel, contact an attorney that can assess your small business and determine if a subchapter v small business reorganization bankruptcy is a good option for you.

Attorneys at Holland Law Group can help you and your small business reorganize through the Small Business Reorganization Act.  Call to schedule a free consultation to see if the Small Business Reorganization Act can help you

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At Holland Law we focus on Consumer Bankruptcy and Debt Defense. We proudly serve Sarasota, Manatee and Charlotte Counties and expanding to serve all of Central and South Florida, from coast-to-coast. We offer free phone or in-office consultations in Bradenton, Sarasota, Lakewood Ranch, Port Charlotte and across the Central and South Florida region. Contact us through the form on this page or call us at (941) 306-3601 to speak with an experienced bankruptcy and debt defense attorney today. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.