SUBCHAPTER 5 SMALL BUSINESS REORGANIZATION

Effective February 19, 2020, Title 11 of the Bankruptcy Code was amended to include a new form of reorganization: the 

Subchapter 5 small business reorganization. It allows businesses and certain individuals with debts below $2.75 million to reorganize their obligations using relaxed Chapter 11 rules. Subchapter 5 makes the reorganization process less complicated by truncating procedural requirements, fewer meetings, and hearings which translate into lower costs. Debtor's reorganization plans should be confirmed provided the debtor contributes all disposable income for three to five years to make plan payments.  This new reorganizational aspect of the Bankruptcy Code has promise and is certainly needed in these trying economic times. The Firm's position is to evaluate each case on its facts and unique legal issues. If it looks like Subchapter 5 is a fit, we will proceed accordingly.

 

It is important to note that the recently enacted Coronvirus Aid, Relief and Economic Security (Cares) Act

has raised the debt limit from $2.75 million to $7.5 million for a one-year period from the Act's effective date. This increase in debt limit will allow many more small businesses to take advantage of the Subchapter 5 bankruptcy reorganization provisions.

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