top of page
Writer's pictureDebbie Hayes

SUMMARY OF KEY ASPECTS OF SUB-CHAPTER V

Chapter 11-SMALL BUSINESS REORGANIZATION ACT OF 2019-

EFFECTIVE FEBRUARY 22, 2020


There has been a recent and significant amendment to the United States Bankruptcy Code which provides a viable alternative to the then existing Chapter 11 process for small business and individuals that meet the requirements. The key requirement to qualify is that an individual or small business may not have secured and unsecured debts (non contingent and liquidated ) exceeding $2,725,625. ( the amount was increased to$ 7,500,000 for one year from the effective date of the Cares Act Passage on April 5, 2020 to allow more businesses to qualify due the Coron

a Virus).

The new small business section, referred to as Sub-chapter V Chapter 11, is designed to provides a faster, more efficient and cost effective means for a small business or individual to reorganize its affairs.

Some of the key features include a much accelerated time period to present and confirm a plan of reorganization, the preclusion of a creditors committee absent court order, the exclusion of a debtor’s requirement to pay US Trustee’s fees, the ability of a business owner/ shareholders to maintain their shares without any contribution by them personally, supervision by a Trustee who has certain specified responsibilities to oversee the case, the elimination of a disclosure statement , the confirmation of a plan without any consenting class of creditors, extinguishment or reduction of mortgage on a residence if the loan was not for the purchase of the home ( but for other reasons) and requirement that the company of individual chapter 11 debtor contribute all of its net disposable income to pay creditors .


The short time frame, preclusion of a creditors committee, elimination of the often time consuming and costly preparation and filing of a Disclosure Statement , confirmation of plan without a consenting class if the requirements are met are all designed to promote and hasten the confirmation of a small business plan under the new code sections in a cost effective manner. The abolishment of requirement to pay US Trustee fees which can be substantial for high volume and low overhead businesses is also important in cost reduction as well as not overburdening a debtor in the early stages of a Chapter 11 case.

The provisions for shareholders to keep their stock and to conform a plan without creditors consent is designed to allow continuity and encourage deals to be made as it relates to confirming a plan. It is always better to have creditor support and even in this modified chapter 11 process a consensual plan will increase the prospect for success and decrease costs of administration ( attorney’s fees and costs) .

The ability to extinguish or decrease the amount of a mortgage to a principal residence which lacks equity is a unique feature for individuals in Chapter 11 , but is limited to loans that do not relate to the purchase of the home. For example a second mortgage obtained for college expenses or other non home use. This provision in and of itself may be a good reason for an individual to file a sub-chapter V small business Chapter 11.

102 views0 comments

Recent Posts

See All

Comments


bottom of page