Jason W. Bank highlights recent changes to the Bankruptcy Code and their impact on small businesses, veterans, and farmers.
As of August 23, 2019, several new bankruptcy acts became law: the “Small Business Reorganization Act of 2019” (H.R. 3311), the “HAVEN Act” (H.R. 2938) and “Family Farmer Relief Act of 2019” (H.R. 2336). These acts represent the first substantive changes to the U.S. Bankruptcy Code since 2005.
The Small Business Reorganization Act of 2019 (“SBRA”) adds a new sub-chapter V to chapter 11 of the Bankruptcy Code for small business debtors that have no more than $2,725,625 in secured and unsecured debts. The goal of the Act is to streamline the chapter 11 process, permitting more small businesses to successfully reorganize in bankruptcy with significantly reduced fees and expenses. Prior to the enactment of SBRA, the bulk of the rules in chapter 11 applied across the board to all businesses, from General Motors to the “mom and pop” shop on the corner. The drafters of SBRA intend subchapter V to encourage small businesses in financial distress to seek bankruptcy relief.
Some of the material provisions of SBRA include the following:
- A small business must file its plan of reorganization within 90 days, which should help to facilitate a quicker emergence from bankruptcy.
- The Bankruptcy Court is required to hold a status conference within 60 days of the filing of the case to address issues in the case.
- SBRA permits a small business owner to file a plan that retains his or her ownership stake in the business, without having to obtain an impaired consenting class of non-insider creditors under its plan, provided that the plan is fair and equitable and does not discriminate unfairly. For a plan to be fair and equitable, a small business must commit its projected, disposable income toward a repayment plan for a minimum of three to five years.
- A small business under Subchapter V may pay administrative (or post-bankruptcy filing) expenses over a period of time, as opposed to upon emergence from bankruptcy.
- SBRA eliminates the requirement to file a disclosure statement, which is the voluminous, prospectus-like document that a business is typically required to file with a plan.
- SBRA requires the appointment of a trustee. Unlike other bankruptcy trustees, the SBRA trustees will not operate the business, but rather assist with the development and implementation of the small business debtor’s plan of reorganization.
- Under SBRA, there will be no appointment of an official committee of unsecured creditors, unless the court for cause orders that a committee should be appointed.
SBRA goes into effect on February 19, 2020.
The HAVEN Act exempts certain benefits paid by the Department of Veterans Affairs and the Department of Defense from the calculation of monthly income. The goal of the HAVEN Act is to enable more veterans to file for chapter 7 bankruptcy, rather than chapter 13 bankruptcy, and will ultimately permit veterans to retain future income and discharge debt without having to enter chapter 13 repayment plans.
The Family Farmer Relief Act of 2019 assists the growing number of financially distressed farmers. This Act increases the debt limit for chapter 12 filings, which will enable more financially distressed farmers to seek bankruptcy protection.
Jason W. Bank has over 20 years of experience in bankruptcy, restructuring and general corporate law. He focuses his practice in the areas of commercial bankruptcy, out-of-court workouts, corporate restructuring and creditors’ rights. Jason is the chair of the firm’s Bankruptcy and Restructuring Department.
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