Chapter 11 SBRA
Up until February 19, 2020, small businesses had a hard time restructuring their business through Chapter 11 bankruptcy because of the costs involved. A Chapter 11 bankruptcy starts with a $15,000 to $20,000 retainer and the hourly attorney fees just keep piling up as the case progresses.
For businesses that are struggling, Chapter 11 bankruptcy allows them to continuing operating the business while they work out their debt obligations with creditors and restructure their finances. Because Chapter 11 is one of the most expensive and complex bankruptcy chapters, small businesses have historically been unable to avail themselves to the benefits of Chapter 11 bankruptcy.
In a rare moment of clarity and cooperation, Congress passed the Small Business Reorganization Act of 2019 by adding subchapter V to Chapter 11 of the bankruptcy code. Commonly referred to as SBRA, this streamlined version of Chapter 11 allows smaller businesses to take continue operating their business while reorganizing the business finances under the bankruptcy code. Small businesses with less than 2.7M in debt can now elect to file under Sub Chapter 5 of Chapter 11 and potentially save their business. Since the process has been streamlined by removing some of the more attorney-time intensive requirements, the SBRA may very well be a lifeline for small businesses that would have otherwise had to shut down operations.SMALL BUSINESS CHAPTER 11 BANKRUPTCY – QUICK OVERVIEW
Sub Chapter 5 of Chapter 11 (SBRA) allows companies and individual owners access to a Chapter 11 bankruptcy if their total their total debt is not more than $2,725,625.00 and most of it was incurred for commercial or business purposes. If a company elects to file under Subchapter 5, some of the changes are:
- Much like a Chapter 13, a subchapter V SBRA case will have a trustee assigned to coordinate the case and make sure that everything moves along. The trustee’s role is to help facilitate resolution of the issues between creditors and company-debtors. In most cases, company-debtor will still keep full control of the business while going through the bankruptcy process.
- The company is able to use all of the disposable income;
- The company’s repayment plan will typically range from 3 to 5 years and much like a Chapter 13 bankruptcy, the restructuring plan will require use of all the disposable income towards making payments.
- SBRA eliminates the absolute priority rule. Under a regular Chapter 11, a company cannot keep their assets unless the creditors are paid in full. The elimination of this rule provides a much higher chance of keeping your ownership interest in the company and successfully emerging from the bankruptcy process.
Under SBRA Chapter 11 Subchapter 5, small businesses now have access to a host of financial options that they can use to save their business. At the Bankruptcy Law Firm of Orfelia Mayor, we are taking it a step further and offering flat fee billing for your small business. When you’re in financial trouble, not having to worry about legal fees is just another small victory. Call today for a free consultation.