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New Reorganization Bankruptcy Option for Small Business Debtors

On Behalf of | Jul 2, 2020 | Chapter 11 |

There is a brand new streamline Chapter 11 case for a small business debtor reorganization case. Subchapter V of Chapter 11 allows a streamline approach for business reorganizations that is a hybrid between an individual Chapter 13 case and a more involved Chapter 11 case. A few of the important points are highlighted below:

1. The debtor can propose a plan that must be filed within 90 days after the bankruptcy petition is filed. This plan must be “fair and equitable” which means that the small business debtor must commit all of its “projected disposable income” or property of equivalent value to make payments under plan for a minimum of three years and a maximum of five years.

2. The debtor must demonstrate a “reasonable likelihood” that it will be able to make all payments under the proposed plan.

3. The debtor makes its payments to a Chapter 11 Trustee who distributes the payments in accordance with the debtor’s bankruptcy plan.

4. The Subchapter V of Chapter 11 process is substantially streamlined as there is no detailed disclosure statement as required in Chapter 11.

There are number of other provisions under Subchapter V that make this a very advantageous case for a debtor business that needs to get rid of a lot of debt in order to be profitable moving forward. This bankruptcy case moves much quicker and is designed for a business debtor that can be profitable moving forward without being burdened by substantial prior debt.

My law firm is very familiar with Subchapter V and the pros and cons of the small business debtor reorganization when compared to a regular Chapter 11 case. We look forward to hearing from businesses with questions regarding their financial circumstances and methods for resolution of business debt.

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