NEW - FOR SMALL BUSINESSES!
By Mark E. Henze
Businesses wanting to stay in business and reorganize use Chapter 11 of the Bankruptcy Code. However, in the past this has been VERY expensive, unwieldy, and complex. It has only been used by huge companies, normally those with public stock and a multinational or international presence. For the small business, you had to rely on Chapter 7 (closing and liquidating the business) or Chapter 13 (wage earner’s plan). But Chapter 13 was only good if your business was a sole proprietorship AND had total debt under about $1 Million.
If your business was incorporated, was larger than this, or didn’t have $50,000 to $100,000 for fees and costs to do a Chapter 11 reorganization, you were basically out of luck. In addition, a Chapter 11 case would require your unsecured creditors to vote to approve your plan, or you could be forced out of your ownership interest in the business (even if it was able to reorganize)!
However, as of February 2020, new legislation changed all this. A small business can now easily reorganize, deal with its debts and stay in business under “Subchapter V” of Chapter 11. The changes are important and include the following:
1. This streamlined bankruptcy requires total debt of less than $2,725,625 . (NOTE: the Debt limiit is temporarily increased to $7,500,000 for the next year in the Coronavirus legislation).
2. At least 50%+ of your total debt must be business rather than personal debt
3. There is no appointment of a creditor’s committee as in a normal Chapter 11 cases
4. Case moves much faster than a regular Chapter 11 case.
5. Very similar to Chapter 13 with a 3 to 5 year payment plan
6. When collateral is worth less than the secured debt, the secured debt can be reduced (crammed)
7. Can modify mortgage payments and terms if the mortgage was used to finance the business
8. There is no expensive and lengthy Disclosure Statement as in a normal Chapter 11
9. Unsecured creditors do not get to vote on the plan
10. You do not face the prospect of having your ownership interest taken away
However, as with any business or personal bankruptcy, the rules can be complex. It is important for you to seek professional help from an attorney who knows this NEW area of the law. Do not trust your business to an attorney who only does Chapter 7 or Chapter 13 cases. Ask them, before you set an appointment with them, if they know what “Subchapter V” is!
For a free initial consultation, call Henze & Associates, P.C. at