Small Business Reorganization Act Helps Small Businesses Condense Chapter 11 Bankruptcy Proceedings

by Richard Fonfrias,

J.D. Chicago’s Financial Rescue &

Bankruptcy Lawyer

Fonfrias Law Group, LLC

 

The Small Business Reorganization Act (SBRA), which takes effect February 22, 2020, offers small businesses with total debts not greater than $2,725,625 the opportunity to resolve their debt with a shorter Chapter 11 bankruptcy proceeding. 

When a small business files under the SBRA, and throughout the three- to five-year reorganization payment period, a “standing trustee” oversees the case. The standing trustee’s duties include reviewing the business’ financial records and operations, reporting fraud to the bankruptcy court, and making sure distributions are made consistent with the company reorganization plan.

While the payment period can last three to five years, the time from filing the Chapter 11 petition to confirming the reorganization plan can be as short as 90 days. In order to reduce fees, the business has to attend only one bankruptcy court status conference prior to the plan confirmation hearing.  And that’s simply to apprise the court of the company’s progress in reaching an agreement with creditors.

After the bankruptcy filing, the document that controls the business’ financial future is the reorganization plan. It can provide one of two ways for how the business will repay its creditors:

(1) the plan will identify “disposable income” that is not used to pay expenses and explain how it will be allocated; or
(2) the plan will distribute part or all of the business’ property so long as it can be shown that the property “is not less than” the projected disposable income that would otherwise go to creditors.

If the business chooses either of these options, and if the plan does not treat some creditors unfairly, then the plan is likely to be considered “fair and equitable” and confirmed. Business owners who follow the payment schedule in their reorganization plan will keep all of the assets in their company.

The SBRA is a remarkable achievement by the Federal Government, the National Bankruptcy Conference, American Bankruptcy Institute and the National Conference of Bankruptcy Judges, all of whom worked on the Act. Small businesses in financial trouble can consider the SBRA a potential remedy to their financial problems.