The general purpose of Chapter 11 of the Bankruptcy Code is to allow a reorganization either for an individual or a company. Several years ago, to encourage smaller companies and individuals who engage in business activities to reorganize, Congress enacted the Small Business Reorganization Act (the “SBRA” known as Subchapter V) which is designed to allow a more expeditious, efficient reorganization process with a quicker exit from bankruptcy. Initially, companies with less than $2.75 million in debt could utilize Subchapter V to reorganize through an expedited process. As the pandemic took over, Congress increased the debt limit to $7.5 million, enabling many more companies to take advantage of Subchapter V. Some of the advantages of Subchapter V:
However, the Subchapter V increased limit of $7.5 million in debt is set to expire within a few weeks. Unless extended by Congress, the debt limit will revert to $2.75 million, which will severely restrict the number of companies eligible to file under Subchapter V. The consequence of Congressional inaction may be the liquidation of small businesses that are not able to meet the reduced debt limits and cannot afford a more expensive Chapter 11 process. |
CONTACTPractice Group Chair 301-230-5231 |
MORE INFORMATIONThe contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work. |
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