The Small Business Reorganization Act added a new Subchapter V to Chapter 11 of the Bankruptcy Code, which streamlines the bankruptcy process and makes it more cost-efficient for businesses to reorganize. Not all businesses qualify for this streamlined reorganization process. Only individuals and companies with total debts below $2,725,625 may take advantage of this process. The CARES Act temporarily increased the debt limit to $7,5 million for bankruptcies filed from March 27, 2020, through March 26, 2021 (extended for another year), allowing small businesses affected by the COVID-19 pandemic to use this easier reorganization bankruptcy process.
At least 50% of the total debt must be from commercial or business activities. A business with primary business activity the ownership of single asset real estate cannot use this streamlined Subchapter V. Subchapter V eliminated certain costs and the plan confirmation is less complex and time-consuming. Also, the equity holders may keep their ownership in their company, even if they do not pay creditors in full and do not provide any new value.
Please note that this article does not constitute legal advice. We simplified the law to provide general information about a relatively new bankruptcy option for small businesses. If you would like to discuss if this type of bankruptcy is the best option for your business, schedule a consultation with an experienced bankruptcy lawyer in Phoenix at www.calendly.com/irena-3 today or call our office at 480-425-2009! We look forward to talking with you and helping you with restoring your peace of mind.
Each year 8 out of every 10 new businesses in the United States fail. Over time, that number grows to 9 of 10 businesses. When a corporation or limited liability company is unable to service its debt or pay its creditors, the company has many choices, among them to file Chapter 7 or Chapter 11 bankruptcy. In Chapter 7, the business ceases its operations altogether, a trustee sells all assets and distributes proceeds to its creditors. Chapter 11 provides tools to restructure debts and save viable businesses and jobs.
You’d be surprised how many well-known companies filed Chapter 11 bankruptcy and not only survived, but thrived after the process — companies like American Airlines in 2011, GM in 2009, Bill Heard Chevrolet, the largest Chevy dealer in 2008, Delta & Northwest in 2005, US Airways in 2004, United & US Airways in 2002 and thousands more.
How Chapter 11 works
The first step for the company is to hire a bankruptcy attorney, preferably an attorney with years of experience representing debtors in Chapter 11 bankruptcies. The Chapter 11 reorganization is very complicated process, which is why an experienced attorney is so critical in making the process a success.
The bankruptcy attorney will assist the company to file a Chapter 11 bankruptcy petition with the bankruptcy court. The next step is for the company to create a reorganization (or liquidation) plan. Unless, the debtor proposes liquidation, it should be a viable plan to keep the company operating on a long-term basis. The plan can propose to sell some assets, reject leases and close stores, restructure debts, reduce some debts, extend debt maturity and interest rates, modify rights of some secured creditors etc. All creditors are placed into classes and they vote on the plan. In order for the bankruptcy court to confirm the plan, at least one class of creditors whose claims are impaired has to vote for the plan and the plan has to be fair and equitable and has to not discriminate unfairly. If the plan is confirmed, the restructured debts became the obligations of the restructured company.
A company has to be represented by an attorney in Chapter 11. If your company is facing financial difficulties, call experienced Chapter 11 attorney Irena Juras at 480-425-2009 to find out what tools Chapter 11 provides for your company or contact us via our website today!
Administrative fees increase as follows:
- For the filling of a new petition under Chapters 7, 12 or 13, $75.00
- For the filing of a new petition under Chapters 9, 11 or 15, $550.00
Fees for filing a new bankruptcy petition will increase as follows:
• Chapter 7 filing fee increases to $335.00
• Chapter 9 filing fee increases to $1,717.00
• Chapter 11 filing fee increases to $1,717.00
• Chapter 12 filing fee increases to $275.00
• Chapter 13 filing fee increases to $310.00
• Chapter 15 filing fee increases to $1,717.00
Lots of people considering filing for bankruptcy fear that they may lose their home.
First of all, there are several types of bankruptcies (for individuals – Chapter 7, chapter
11 and chapter 13). The answer to the above question may be different depending on which
bankruptcy you file. If you file Chapter 7, you are current on your mortgage and there is
no equity in your home (or equity up to certain exempt limit, which is different in each
state, e.g., $150,000.00 in Arizona), you should be able to keep your home. If you are
behind on your mortgage payments, Chapter 13 bankruptcy may be better option for you.
Chapter 13 gives you a tool to cure the arrearage over time and thus, allows you to save and
keep your home. Chapter 11 is similar to Chapter 13, but it is more expensive type of
bankruptcy, mainly for people whose debts exceed the Chapter 13 debt limits. In summary,
the filing of the bankruptcy does not necessary mean losing your home. To the contrary,
certain types of bankruptcy may give you another tool to protect and keep your home. Since
your home is important to you and your family, our recommendation is to consult with an
experienced bankruptcy attorney how to protect your home. Contact us to schedule a free