Amendments to Bankruptcy Code Go Into Effect in Time to Help Small Businesses Affected by the COVID-19 Pandemic

  • Mar 18, 2020

In August 2019, Congress enacted the Small Business Reorganization Act of 2019 (“SBRA”), in order to make small business bankruptcies faster and less expensive.  The new subchapter to Chapter 11 of the Bankruptcy Code was enacted specifically for “small business debtors” which are defined to include individuals and entities such corporations or limited liability companies engaged in business or commercial activities with secured and unsecured debts in aggregate less than $2,725,625.  The SBRA went into effect in February 2020, so it is now available for those businesses impacted by the COVID-10 pandemic.

The purpose of the SBRA is to streamline the traditional reorganization process to remove procedural burdens and costs associated with the normal Chapter 11 reorganization case. For example:

*Unless the court orders otherwise, there are no unsecured creditors committee, which in the past has added significant cost to a debtor.

*The SBRA requires that a plan be filed within 90 days but does not require a separate disclosure statement or solicitation of votes.

*Administrative expenses associated with the plan can now be paid over the term of the plan as opposed to the old requirement that they be paid in full upon plan confirmation

Additionally, SBRA allows small business debtors to modify a mortgage secured by a residence if the underlying loan was not used to acquire the residents and was used primarily in connection with the small business of the debtor.

For additional information, contact Scott A. Bachert at 1025 State Street, Bowling Green, Kentucky 42101, 270-782-8160 or by email: sbachert@kerricklaw.com.

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