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Subchapter V: The New Solution to Small Business Debt

Is your small business struggling to turn a profit? Has it accumulated more debt than it can manage? Most entrepreneurs expect to weather a few years of financial struggle when they start a new business, but, in some cases, these challenging years never seem to end. 2020 is a particularly hard year for small businesses all over the country, as the economic effects of the pandemic continue to build without an end in sight.

If you’re like millions of other American business owners, you may be asking yourself, “Do I keep struggling, or do I cut my losses?”

Fortunately, you may have a third option.

The Small Business Reorganization Act

Last year, Congress passed a bill called the Small Business Reorganization Act (SBRA) of 2019. Just in time for the pandemic and all its financial consequences, the SBRA added a section called Subchapter V to Chapter 11 bankruptcy, effective in February of 2020.

Subchapter V is exclusively available to qualifying small businesses. Many have called it a gamechanger because it allows small businesses to access the relief that couldn’t be achieved through a normal Chapter 11 case. Since its inception in the 70s, Chapter 11 has allowed large corporations to restructure and survive financial hardship, but small businesses haven’t been able to afford the steep costs or navigate the time-consuming legal hurdles.

Through Subchapter V, however, small businesses might be able to reap the benefits experienced so often by their corporate counterparts.

How Does Subchapter V Work?

Subchapter V is arguably a combination of Chapter 11 and Chapter 13.

Like Chapter 13, Subchapter V will have you make monthly payments using all your disposable income for 3-5 years. Once you complete the plan, you can benefit from a debt discharge.

Like Chapter 11, Subchapter V is geared toward companies, rather than individuals. It allows them to restructure, repay debt, and reduce financial obligations without going out of business.

Here are a few other things to understand about Subchapter V:

  • Currently, you can qualify for Subchapter V if you owe no more than $7,500,000. At least half of this debt must be commercial in nature. The $7.5 million thresholds is the result of a temporary increase per the CARES Act, and it will return to the original threshold of $2,725,625 in March of 2021.
  • You will need to submit your repayment and reorganization plan within 90 days of filing your petition. Fortunately, the court can approve your plan without consent from your creditors. In a regular Chapter 11 case, creditors must approve the repayment plan, and they could even propose a plan themselves.
  • You will most likely maintain control over your business assets and operations. Unlike a regular Chapter 11 case, your ownership of assets won’t be subjected to the Absolute Priority Rule. The Absolute Priority Rule would prevent you from retaining ownership unless all your creditors are repaid in full.

Bankruptcy can be a powerful solution to severe financial hardship, but it is not right for everyone, and there may be other ways to improve your business’s financial prospects. For personalized recommendations, get in touch with a seasoned professional.

Support You Can Trust

When you bring your case to Joseph J. Mancuso, P.A., you can depend on our attorney to handle your case with the utmost care. Attorney Mancuso has more than 25 years of experience helping individuals and businesses achieve relief from debt, and he looks forward to putting that experience to work for you. Whether we help you file bankruptcy or implement an effective alternative, our goal will be to guide you toward a brighter financial future as efficiently as possible.

Schedule your free initial consultation by contacting us online or calling (407) 378-5488 today.