What Is The Small Business Reorganization Act?
The Small Business Reorganization Act went into effect on February 19,
2020 and added a new subchapter V to
Chapter 11 designed to make bankruptcy easier for small businesses. The statute defines
eligible small business as “entities with less than about $2.7 million
in debts that also meet other criteria,” according to the U.S. Department
of Justice, and the act:
Imposes shorter deadlines for completing the bankruptcy process
Allows for greater flexibility in negotiating restructuring plans with creditors
Provides for a private trustee who will work with the small business debtor
and its creditors to facilitate the development of a consensual plan of
Be aware that entities that derive substantially all their income from
operating a single real property are ineligible for Subchapter V. Also,
Subchapter V does not repeal existing Chapter 11 provisions regarding small
business debtors; instead, it creates an
alternative procedure that small business debtors may elect to use.
Who Is Eligible For Subchapter 5?
In Florida, businesses that meet certain eligibility requirements may be
eligible for Subchapter V. To be eligible, the debtor must:
Be a small business: To qualify, the business must have aggregate noncontingent liquidated
secured and unsecured debts of no more than $7.5 million.
- Be engaged in commercial or business activities: The business must be primarily
engaged in commercial or business activities, and must not be a single
asset real estate debtor.
Seek reorganization: The business must be seeking to reorganize its debts and continue operating.
- Have a debtor in possession: The business is allowed to remain in possession
and control of its assets and operations, which means it must have a debtor
in possession to manage the bankruptcy proceedings.
Have a plan of reorganization: The business must propose a plan of reorganization that complies with
the requirements of Subchapter V.
If a small business meets these eligibility requirements, Subchapter 5
may be a viable option for debt relief and reorganization. However, it's
important to consult with an attorney in Florida who can assess your individual
situation and help you determine the best course of action.
Get experienced guidance for your small business bankruptcy by speaking
with a Florida subchapter V lawyer at Julianne Frank, Esq.. We can ensure
that you meet all legal requirements for eligibility and reorganization.
online or call
(561) 220-2528 for an evaluation.
Subchapter V Payment Plans
Subchapter V allows a debtor to spread its debt
over 3 to 5 years, during which time the debtor must devote its projected disposable income
to paying creditors.
Generally, this benefits both debtors and creditors, as it allows debtors
to spread payments over time and allows creditors an available recovery
from debtors who have a realistic expectation of income over time. In
a traditional Chapter 11 case, administrative expenses must be paid at
plan confirmation, but under Subchapter V, they may be paid over the life
of the plan.
What Is The Difference Between Chapter 11 And Subchapter V?
Subchapter V is generally a faster, more efficient bankruptcy process.
A plan of reorganization must be filed with the bankruptcy court within
90 days of the commencement of the proceeding. However, the bankruptcy
court may extend this deadline under special circumstances a debtor should
not be held accountable (e.g., COVID-19).
In addition, certain documents like disclosure statements do not need to
be drafted as they would in a traditional Chapter 11 bankruptcy.
Subchapter V restructurings are similar to Chapter 11 bankruptcies in that
businesses or individuals with primarily business debt have the option
Selling off assets to reduce debts
Funding a reorganization plan with future income
Conducting a liquidation of desired assets
The plan of organization must be feasible and fair, filed in good faith,
and in the best interest of the creditors. Subchapter V businesses also
have the protection of the bankruptcy court and can receive appropriate
flexibility from creditors.
Regarding the role of the trustee, under Subchapter V, a trustee is automatically
appointed, but the debtor retains control of its assets and operations.
Creditors’ committees are formed only for cause in Subchapter V
cases, in contrast to Chapter 11 cases.
Subchapter V also cushions small business owners from certain personal
consequences that might discourage a Chapter 11 filing. For instance,
if the debtor’s principal used their primary residence as security
for a loan to fund the small business, the debtor’s plan may modify
the loan. Additionally, Subchapter V also does not require equity holders
to provide “new value” if they want to retain their equity
interest in the business.
(561) 220-2528 or contact Julianne Frank, Esq.
online to discuss your case with an experienced professional in Subchapter V.
We serve businesses throughout Palm Beach and Florida.