Bankruptcy for Small Businesses

Eastern Shore Bankruptcy Attorneys Tailor Chapter 11 Filings for Small Businesses

Salisbury debt relief lawyers advise on Subchapter V reorganizations

Debt reorganization under Chapter 11 of the Bankruptcy Code allows businesses to stay in operation while they pay off their debts, but the process is normally too complicated and expensive to be useful for small businesses. However, the Small Business Reorganization Act of 2019 introduced a simpler and more cost-effective means of debt structuring, known as Subchapter V. At The Law Firm of Shaw & Crowson, P.A. in Salisbury, we are experienced in helping Eastern Shore businesses resolve their debt problems and restore themselves to solvency. With a few questions, we can determine if you qualify for this new type of bankruptcy relief and help you take advantage of it.

Which small businesses qualify for Subchapter V?

An eligible small business debtor is an individual or entity with no more than $2,725,625 in noncontingent secured and unsecured debt, not counting debt owed to owners, officers, affiliates or subsidiaries. The CARES Act has temporarily raised the debt limit to $7.5 million, for at least a year starting on March 27, 2020, in recognition of the harm suffered by small businesses as a result of the coronavirus pandemic.

At least half of this debt must arise from business and commercial activities, as distinguished from personal debt. In addition, a debtor whose primary business activity is owning or operating a single piece of real estate is not eligible.

Why choose Subchapter V reorganization?

The simplified Subchapter V process removes many of the obstacles that made Chapter 11 unproductive for small businesses. In some ways, Subchapter V is similar to Chapter 13 debt restructuring for individuals. Its most notable features are these:

  • The debtor remains in control of the business.
  • A bankruptcy trustee is appointed but usually has only a general supervisory role.
  • A creditors’ committee is formed only for cause, such as an allegation of mismanagement.
  • Only the debtor may propose a plan of reorganization. The sole requirement is that it be fair and reasonable.
  • The plan can spread out debt payments over a three- to five-year period, after which remaining debt is discharged.
  • The debtor can pay off bankruptcy administrative expenses over the life of the plan.
  • The business owners need not invest additional money in order to retain their equity interest, as would be required in a standard Chapter 11.

On the other hand, the debtor must apply all of its projected disposable income to paying off its creditors under the plan. We can advise you of everything involved, file the necessary paperwork and guide you through the process.

Contact a federally designated debt relief agency in Salisbury, Maryland

If you are interested in considering Subchapter V reorganization for small businesses, call The Law Firm of Shaw & Crowson, P.A. at 410-742-9171 or contact our team online.

We are a federally designated debt relief agency. We provide debt relief under the Bankruptcy Code.