What You Should Know About Small Business Bankruptcy

Until 2019 Chapter 7 liquidation was the only alternative a small business had available to them if they needed to file for bankruptcy. Therefore any small business that had to file for bankruptcy had to file for Chapter 11 protections. Unfortunately, numerous paperwork necessities accompanied this process.

Congress passed what’s known as the “Small Business Reorganization Act” (a.k.a., subchapter V) in 2019. This has helped streamline the process for any small business that has needed to file for bankruptcy since that time. The good news here is that small businesses were able to get all of the advantages of filing for Chapter 11 bankruptcy (e.g., restructuring loans) without facing all of the hurdles that big companies must go through.

Understanding what the Small Business Reorganization Act (Subchapter V) Is

In the three years since the passing of the Small Business Reorganization Act (Subchapter V), many small businesses have found that it’s a great alternative for small business bankruptcy. However, if you want to get this type of Chapter 11 protection that’s available to your small business here, you’ll need to act quickly.

Congress didn’t make this bankruptcy option available to every business. Therefore there are some things you need to understand in order to know whether or not your business can avail itself of the streamlined subchapter V alternative.

First, it’s important to note that there are some key limitations to filing for small business bankruptcy. One of the main ones is the restriction on the maximum amount of debt that your business can have. Typically, a business isn’t allowed to have an accrued debt of more than $2,725,625. This takes into consideration both their secured and unsecured debts. However, Congress passed the CARES Act late in April 2020. This did small businesses a favor in that Congress temporarily raised this debt limit to a more lenient amount of $7,500,000. In doing so, the new debt limit was about three times the original limit that had been set by Congress. This allowed several small businesses the opportunity to take advantage of a more simplified approach to filing Chapter 11 bankruptcy. There was a catch to all of this, though: As of March 27, 2021, this higher limit expired, so now it’s once again fallen back to around $2,700,000. However, anyone who’s currently contemplating filing for small business bankruptcy should do so as soon as possible.

A Smart Way to Reorganize Your Small Business Debts

There’s no need for your small business to simply shut down all of its operations so it can file for small business bankruptcy. Your issues may stem from the fact that you have leases and debts that are no longer working out for your business. You may even have some liens that restrict your business assets. There’s good news here in that you can rework all of these things in your small business bankruptcy so that your business emerges from the pandemic on a much firmer footing.

As a savvy business person, you can get the upper hand here by using Chapter 11 bankruptcy to take control of your business’ debt. Ultimately, a judge can make your creditors accept some type of repayment plan that allows your business to pay less than what it actually owes. Many of your business’ secured debts can also become unsecured through this bankruptcy process.

When you need to file for small business bankruptcy in Tampa, FL, make sure to reach out to our experienced lawyers at Weller Legal Group. We’ve helped many small and family-owned businesses throughout the area. Call us now to schedule your initial consultation.