THE NEW SMALL BUSINESS REORGANIZATION ACT

In a hope to streamline the bankruptcy process for insolvent small businesses and rehabilitate their financial affairs under Chapter 11 bankruptcy, Congress enacted the Small Business Reorganization Act of 2019. This act will go into effect on February 19, 2020. The act contains a new subchapter V for Chapter 11 small business debtors, which allows the debtor to elect for this subchapter and its provisions to apply. The Act provides a number of important changes that benefit both debtors and creditors alike and streamlines the Chapter 11 bankruptcy process for small businesses.

Eligibility for Chapter 11 Bankruptcy
Chapter 11 reorganization is only available for companies with secured and unsecured debts of $2,725,625 or less. Only the small business can file a Chapter 11 plan. This plan must be filed within 90 days of the filing of the bankruptcy petition, unless special circumstances apply. Once the plan is filed, a standing trustee is appointed to oversee the case.

Beneficial Changes for Debtors
A case under the Small Business Reorganization Act should be quicker and less expensive than a typical Chapter 11 case under the new provisions. Historically, many small business debtors have not been able to obtain the benefits of Chapter 11 reorganization because of the costs and administrative burdens associated with this bankruptcy plan. The Act seeks to remove many of these obstacles to make Chapter 11 filings more beneficial to creditors. Some of the beneficial changes for debtors include:

  • The Act streamlines the reorganization process. Many of the procedural requirements and costs associated with them have been removed.
  • There are more debtor-friendly provisions. A loan secured by the debtor’s principal residence may be modified under the plan if the loan proceeds were used for the benefit of the small business.

  • Having the plan approved is easier. The court can confirm a debtor’s plan without the support of any class of claims so long as the plan is not discriminatory and is considered fair and equitable, which is defined as providing all of the debtor’s projected disposable income during the plan toward payments under the plan for three to five years.
  • A creditors’ committee will not be formed.
  • Administrative expense claims payments can be delayed.
  • Debtors can make payments toward administrative expense claims during the term of the plan instead of having to pay them upfront.

Beneficial Changes for Creditors
Most notably, the Act makes changes to existing preference laws that many creditors will appreciate. Under current provisions, debtors and trustees have broad authority to recover preferential transfers that were made 90 days before the bankruptcy case was filed. This lawsuit would have to be filed in the federal district where the defendant resides if the transfer was less than $13,650. The new provisions raise the threshold to $25,000 and imposes an additional requirement that the debtor exercise reasonable due diligence and consider the creditor’s possible affirmative defenses. These changes may minimize the number of such preferential suits.

Another beneficial change for creditors is that there are more exceptions to discharge than under a typical corporate Chapter 11 case.

Important Questions to Ask Your Bankruptcy Lawyer

Debt, especially when it is more than you can handle, is one of the most stressful things you can face in life.  A Chicago, IL bankruptcy lawyer can help you get a handle on debt and start fresh with your finances.  Having a list of questions ready for your initial meeting with a Chicago, IL bankruptcy lawyer can help you stay calm and learn as much as possible before you decide to file.

 

What questions should you ask your bankruptcy attorney?

 

What is Your Bankruptcy Experience?

It is important to work with a lawyer who is focused on bankruptcy.  The laws regarding bankruptcy tend to change fairly frequently and someone who is only practicing bankruptcy law part time will have a tough time keeping up.  Any lawyer you work with should have at least three years of experience working with bankruptcy clients and should dedicate the majority of his or her practice to bankruptcy cases.

 

What Types of Bankruptcy Cases Have You Handled?

Most individual consumer files for either Chapter 7 or Chapter 13 bankruptcy.  Though there are similarities among the two, they overall process of each is vastly different.  You want an attorney who can offer you the best advice concerning which chapter is right for you and be able to guide you through the process from start to finish regardless of which chapter you choose.

 

How Much Will It Cost Me to File for Bankruptcy?

It might seem counterintuitive to pay to file for bankruptcy, but the simple fact is bankruptcy is not cheap and your attorney’s fees are only part of the cost.  Make sure you understand in detail how much filing will cost and whether there will be any extra costs once you get started.  Make sure you receive a written fee agreement and that you understand when payments are due.

 

Will You Represent Me in Court?

Some bankruptcy attorneys meet with a client for an initial introduction and then pass that client off to their staff.  This does not mean that working with someone other than the lead attorney will hurt your case, but it does mean you need to know what to expect.  If another attorney will be going to court with you, make sure you meet this person prior to your 341 meeting of creditors.

 

How Long Will My Case Take?

Much of this depends on the chapter you choose.  Most Chapter 7 cases are completed within a few months – usually about six.  Chapter 13 cases take much longer because you will be committing to a multi-year payment plan.  In either chapter, it is possible to get the ball up and running and get the automatic stay in place quickly, but when it comes to debt discharge, you are dealing with drastically different timeframes.

 

Is Bankruptcy My Best Option?

You should never feel pressured into bankruptcy by Chicago, IL bankruptcy lawyer.  The truth is it is not the right option for everyone and an honest bankruptcy lawyer will tell you if this is the case for you.  But if bankruptcy is your best option, you want to work with someone who can clearly explain the benefits of filing and help you every step of the way.