There is something new and exciting in the world of Bankruptcy which gives small businesses in financial distress a chance to reorganize and continue operating, rather than shutting the doors. In 2019, the Small Business Reorganization Act (SBRA) was passed and went into effect in early 2020, with impeccable timing – just prior to the pandemic.
Under the SBRA, Congress created a more affordable, less burdensome option under Chapter 11 of the Bankruptcy Code for small businesses called the Subchapter V Bankruptcy. Under a Subchapter V Bankruptcy, the small business Debtor, after presenting financial documents to the Court, can pay to its creditors pennies-on-the-dollar, with a monthly or quarterly payment toward its debts based on the calculation of the business’s “disposable income”. In other words, whatever funds the small business has leftover at the end of the month, after its reasonable and necessary operating expenses, will go to the creditors, even if that disposable income is not enough to cover all of the business’s debts.
One of the huge benefits is that if a principal of the small business has a lien on his/her residence due to a personal guarantee on a business debt, that lien can be decreased or removed from the real estate completely in the Subchapter V Bankruptcy.
While creditors do not have the power (like in a traditional Chapter 11 Bankruptcy) to prevent the repayment plan from being confirmed by the Court in a Subchapter V Bankruptcy, creditors do have the opportunity to review the Bankruptcy filing and its disclosures and file objections if necessary. There are a number of objections that can be made by a creditor in order to be paid more, or all, of its claim. Therefore, it is important to involve an experienced and competent Bankruptcy practitioner when navigating a Subchapter V, or any Chapter, of Bankruptcy, whether as a Debtor, a Creditor, a Purchaser of a Debtor’s assets, or other interested party.
On November 23, 2021, Attorneys Larry Young and Haley Rohrbaugh presented on the topic through the York County Economic Alliance. The recorded presentation can be found HERE. CGA Law Firm continues to be ranked Tier 1 in Bankruptcy and Creditor Debtor Rights / Insolvency and Reorganization Law for the Harrisburg Region by the U.S. News and World Report, so contact us today if you need assistance or are interested in learning more about the topic.
Shareholder | Bankruptcy and Debt Restructuring Chair | Attorney
Larry Young is a shareholder with CGA Law Firm and currently chairs the firm’s Bankruptcy and Debt Restructuring group. He focuses his practice on consumer bankruptcy matters, Chapter 11 and corporate reorganizations, debt restructuring, and workouts. Larry is one of only 25 attorneys designated by the American Board of Certification as a Consumer Bankruptcy Specialist throughout the Commonwealth.
Haley Rohrbaugh is an attorney with CGA Law Firm with extensive years of legal experience in both Florida and Pennsylvania. She joined the Bankruptcy Law Group at CGA in 2010, where her primary focus is in Chapter 13 and Chapter 7 Bankruptcy, although she also assists clients in business formation and representation, collections, and estate law.