Chapter 11 - Small Business
The Small Business Reorganization Act, Subchapter 5 of Chapter 11
The Small Business Reorganization Act, Subchapter 5 of Traditional Chapter 11
In August of 2019, Congress enacted Subchapter 5 to Chapter 11 of the bankruptcy code, also known as the Small Business Reorganization Act of 2019 (SBRA). The newly enacted Small Business Reorganization Act was codified as a subpart to Chapter 11, and it provides attractive alternatives for the reorganization of business debt.
Subchapter 5 aims to offer a more efficient remedy to small businesses and individuals with large amounts of business debt who would not otherwise be eligible for a Chapter 13 bankruptcy and who want to avoid the high costs and complexities of a traditional Chapter 11 bankruptcy. Prior to the act being passed, small businesses struggling to keep up with their debt had to choose between a liquidation under chapter 7 (or an Assignment for the Benefit of Creditors) and an expensive and time-consuming Chapter 11 bankruptcy. This is no longer the case.
Intention
The intent of Subchapter 5 is to streamline the traditional Chapter 11 process for small businesses and individuals with large amounts of business debt, with the goal of reducing both the time and money associated with the traditional Chapter 11 bankruptcy process. Subchapter 5 offers you more control during the bankruptcy process over a traditional Chapter 11 bankruptcy, as you are the only entity that can propose a plan for court approval under Subchapter 5. This is a helpful feature as you do not have to be distracted or concerned with competing plans being filed by your creditors, which can happen in a traditional Chapter 11 filing under certain conditions.
Also, Subchapter 5 debtors do not need to obtain court approval of a separate disclosure statement, or solicit votes from your creditors to have your proposed plan confirmed. These difference alone are a major area of both time and cost savings of a Subchapter 5 small business bankruptcy vs. a traditional Chapter 11 bankruptcy.
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