April 15, 2020
The Small Business Reorganization Act of 2019 (the “SBRA”) went into effect on February 19, 2020. The purpose of the SBRA is to assist and enable small businesses to file a Chapter 11 bankruptcy in a much more expeditious and effective way. The SBRA has, and will, benefit a significant amount of businesses in Los Angeles. Only small businesses are eligible for the bankruptcy filing allowed under the SBRA. Below, we will go into a bit of detail as to the benefits that a small business has due to the SBRA. Importantly, these benefits were expanded by the The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) that Congress approved in March 2020.
The Benefits of the SBRA for Small Business Bankruptcies in Los Angeles
There are several key provisions of the SBRA that are important to know:
- The SBRA is applicable only to small businesses, not large businesses.
- Debtors must file a Chapter 11 Plan within 90 days of the date it files its bankruptcy petition, except in certain circumstances (this is significantly shorter time period than the time period prior to the SBRA);
- Disclosure statements are not necessary (the disclosure statement was is a tedious and lengthy process that must be followed in standard chapter 11 bankruptcy cases;
- A standing trustee is appointed to oversee each small business case (similar to chapter 13 cases);
- The Chapter 11 plan can modify the rights of a creditor secured by a security interest in the debtor’s principal residence if the loan secured by the residence was not used to acquire the residence but was used in connection with the debtor’s business;
- The Court can confirm a debtor’s plan without the support of any class of claims as long as the plan does not discriminate unfairly and is deemed to be fair and equitable with respect to each class of claims;
- The Chapter 11 plan must provide that all of the debtor’s projected disposable income to be received during the length of the plan will be applied to make payments under the plan for a period of 3 to 5 years. This requirement is also similar to Chapter 13 cases.
How the CARES Act (Enacted Due to Coronavirus) Affected the SBRA
The CARES act that was approved by Congress in March 2020 affected small business bankruptcy filings in one major way. The CARES Act raised the $2,725,625 “debt ceiling” under the SBRA to $7,500,000. That means that significantly more small businesses would have access to the more streamlined and cost-effective Chapter 11 reorganization process available under the SBRA. The increased debt ceiling is only a temporary measure, and the ceiling will return to $2,725,625 after one year from the enactment of the CARES Act; however, this temporary change will make the bankruptcy process quicker and more efficient for small businesses who are impacted by the Coronavirus pandemic and will allow them to return to normal business operations more rapidly.
Additionally, we expect that if the effect on the economy will last more than a year, congress will vote to extend this higher ceiling.
Small Business Bankruptcy in Los Angeles
The expansion of access to the SBRA’s streamlined chapter 11 reorganization process will facilitate and provided an opportunity for viable businesses to bounce back from the economic effects of the COVID-19 pandemic more quickly and easily than the traditional Chapter 11 process. We expect a large amount of businesses will benefit from the SBRA generally, and from the benefit that the CARES act provided to businesses in Los Angeles and all over California. Our bankruptcy attorneys understand the SBRA and the CARES Act and can assist with bankruptcy relief in Los Angeles.
Want to Learn More About Bankruptcy Fees and Costs Involved with Filing a Small Business Bankruptcy, Consult With a Los Angeles Bankruptcy Attorney Now!
If you have a significant amount of debt, or if you are running a business that has significant loss, give us a call now and let’s discuss your small business bankruptcy options under the SBRA. We would be happy to talk to you and provide you with all of your options in confidentiality. Contact a Los Angeles Bankruptcy Attorney now!
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