In less than a month, the nifty new small business bankruptcy option that makes Chapter 11 feasible for the little guy reverts to its far smaller debt limits.
Still great, but available to fewer troubled businesses.
SBRA is a new subset of a Chapter 11 bankruptcy reorganization. Also called a Subchapter V case, it’s designed to make reorganization far easier for a truly small business (or businessperson) to achieve.
Like Chapter 13, it has debt limits and allows the bankruptcy debtor to keep his property. Creditors don’t get to vote on the plan, and it gets done quickly.
With the onset of the pandemic, the CARES Act of March of 2020, almost tripled the debt limits for SBRA eligibility. But only for a year.
Until March 27, 2021, businesses with as much as $7.5M in total debt qualify for a Subchapter V case if at least half of that debt is business debt. When the CARES Act increase expires, the debt limit reverts to $2,725,625.
Features of new small business bankruptcy
Two features of a Subchapter V case leap out at me:
- There’s no absolute priority rule
- Payment to creditors can be measured by income not asset value
Together, those two provisions change the game.
Diving into the heart of Subchapter V is beyond the scope of this post. Just know it is a powerful tool that makes reorganization of small businesses feasible.
Window closing soon
The increased debt limits are set to expire on March 27, 2021. There is “talk” in Washington about extending the debt limit increase, but you can’t save a business on “talk”.
Congress extended the increased debt limit for Subchapter V cases at the very last minute in March. Whew!
Upon the expiration of the enhanced debt limits, Subchapter V reverts to the lesser debt limit, but with all the other attractions created for small businesses.
Know too that if you want to take advantage of this opportunity, your attorney will need time to prepare your case before filing. Time periods in Subchapter V are short but the return can be life saving.
