Small Business Reorganizations under New Subchapter V of Chapter 11 of the Bankruptcy Code

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About This Course

The purpose of this CLE program will be to discuss the changes to the new Subchapter V of the bankruptcy code and its impact on small business reorganizations. President Trump signed into law the Small Business Reorganization Act (“SBRA”), Pub. L. No. 116-54. Congress increased the cap to $7,500,000 for the next year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act from $2,725,625.00. These provisions are not a new chapter of the bankruptcy code, but a subchapter of chapter 11 of the bankruptcy code and the existing chapter 11 sections will apply unless otherwise modified by Subchapter V.

There are 3 chapters of the bankruptcy code that are used in this district and they are chapter 7, chapter 13 and chapter 11. Subchapter V is a subchapter of chapter 11 and not a new chapter of the Bankruptcy Code. In the way of background, chapter 7 cases are liquidations for individuals or businesses, chapter 13 are organizations for individuals (not businesses) where the individual uses 3 to 5 years of future earnings (disposable income) to pay creditors and chapter 11 are reorganizations or liquidations for individuals or businesses. As will be discussed below Subchapter V is a blend of chapter 11 and chapter 13 and the goal of the law is to make it easier and cheaper for small businesses to reorganize! In this district, 90% of chapter 11 filings are unable to reorganize and those cases are converted to chapter 7 (closed by the Bankruptcy Trustee) or dismissed as “no asset” cases. This change in the law is an attempt by Congress to simplify the reorganization process and reduce the cost of small business chapter 11 filings. Subchapter V can be found at 11 U.S. Code sections 1182 through 1195.

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