CARES Act Expands Access to Chapter 11 Bankruptcy Relief for Central Florida Small Businesses

The coronavirus pandemic has hit small businesses hard, forcing many of them to close, open at limited capacity, or file for bankruptcy protection. Prior to the passage of the CARES Act, which went into effect on March 27, 2020, filing for Chapter 11 bankruptcy was not an option for most small businesses due to the cost and complexity of the process.  In this posting, we will address the recent changes brought on by the Coronavirus Aid Relief and Economic Security (CARES) Act and provide Central Florida businesses with advice on how they can protect themselves during this time of economic uncertainty.

Changes began with the passage of the Small Business Reorganization Act (SBRA) in February 2020, which streamlined the Chapter 11 bankruptcy process. The SBRA added a feature to the bankruptcy code, titled Subchapter V, which was intended to make the Chapter 11 bankruptcy process quicker and less expensive for smaller businesses that would not have sought Chapter 11 protection previously. Under the SBRA, small businesses with debts totaling up to $2,725,625. could file for Chapter 11 bankruptcy. The CARES Act increased that debt threshold to $7.5 million, making business bankruptcy a real possibility for even more small businesses.

Subchapter V has been credited for streamlining the Chapter 11 bankruptcy process, allowing small businesses to file and receive the benefits of restructuring under bankruptcy without completely giving up control of their day-to-day operations. It also eliminated the requirement of the business owner to pay quarterly U.S. Trustee’s fees.

The bankruptcy court will hold a status conference within 60 days of filing for the purpose of determining how the case will proceed. At this point, the court will decide if proceedings should be customized based on the circumstances of the business filer.

Under Subchapter V, the filer must submit a reorganization plan within 90 days of filing for bankruptcy. Previously, the filer had to work with a committee of their unsecured creditors who had to review and approve the plan before going forward. However, under this new subchapter, the submitted plan will be approved so long as the filer allocates a certain amount of discretionary income towards repayment plans over the next three to five years.

Meanwhile, the business owner remains in control of the business, even if the plan of reorganization does not fully repay unsecured creditors- eliminating the ‘absolute priority’ rule which does not apply under Subchapter V. Not having a creditors committee in the bankruptcy case will also make the process less expensive. The court may approve the submitted plan, even if the creditors object, which is another change brought by the SBRA.

A consulting trustee will be appointed by the U.S. United Trustee Program to work with the businessowner throughout the case.  The broadened threshold offered through the CARES Act is set to expire in 2021.

If you have questions on this topic or are a small business struggling with debt, call us today to schedule a free consultation. The Benenati Law Firm has eliminated nearly a billion dollars of debt for its bankruptcy clients, making the firm one of the top twenty filers of bankruptcy in the nation. We have helped thousands of individuals and businesses eliminate their debt and get a fresh start financially. The day you hire our firm, we will contact your creditors to stop the harassment and collection calls. We make our hours convenient for our clients and offer FREE digital sign-ups and consultations on Saturdays (9:00 a.m. – 3:00 p.m.) and throughout the week until 5:00 p.m. If you or your business are in a financial crisis and considering filing for bankruptcy, contact an experienced Orlando bankruptcy attorney who can advise you of all of your options.