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How the New Bankruptcy Bill Affects Small Businesses

There are many reasons a business looks at bankruptcy as an option.  Competition, economic climate, lawsuits, and many more situations can create an unsustainable environment.  Believe it or not, some businesses cannot afford to declare bankruptcy so they just close.  The new bankruptcy bill was inevitable.  Support for small businesses similar to that of chapters 12 and 13 is long overdue.  It shortens the amount of time it takes to file, allows small businesses to file at a cheaper rate, and allows the business to maintain more control during the process.

Back in the Day

Life before the Small Business Reorganization Act of 2018 was pretty grim for a failing business.  A business that was considering bankruptcy almost certainly had to follow the rules of chapter 11.  They had to file within 120 days of declaration, were forced to notify and plan with creditors, and the process was very expensive.  So expensive, in fact, that many businesses chose to close instead of potentially saving their business through bankruptcy.

The New Bill

The Small Business Reorganization Act of 2018 gives struggling businesses with less than $2.5 million in debt, the opportunity to file for bankruptcy in a way that mimics chapter 13.  For example, under the new bill, a small business will not be expected to pay over $25,000 to a creditor in the first 90 days of bankruptcy.  Bankruptcy under the new sub-chapters will greatly reduce the cost of the process which can be around $300,000. 

What Is Required to Declare Bankruptcy Under the New Sub-Chapter V?

Of course, there are still requirements for a small business if they wish to take advantage of this new opportunity.  Under sub-chapter V, a small business must:

  • Give a brief history of the business which is declaring bankruptcy;
  • Provide data to support the execution of the repayment plan proposed by the debtor;
  • Offer a detailed description of the business’s ability to liquidate;
  • Put a system in place to allow for the funneling of all future earnings to the designated trustee to support payment to creditors.

Bankruptcy is often thought of as a negative outcome for a business, but this does not have to be the case.  New laws are making it more possible for a business to declare bankruptcy and stay open.  If your small business is struggling and you need help understanding your options, contact Dsouza and Strachan Lawgroup Group for a free consultation.  Elias has been helping businesses with their financial troubles for over 15 years.

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