Relief for Small Businesses

Starting a business is always an act of faith, the combination of a dream and determination. But sometimes you can hit rough patches that make it impossible to move forward without help. In 2021, Chapter 11 and particularly subchapter V will be a valuable tool for keeping the dreams of small business owners alive.

Traditionally, Chapter 11 has been a tool used (and sometimes abused) by giant corporations. Either they played fast and loose with their finances and got caught (anyone remember Enron?) or, much more frequently, their business model didn't keep up with the times, e.g. Sears and Blockbuster Video, both giants in their day.

Unfortunately, what worked great for Wall Street was too cumbersome and expensive for Main Street. In 2020, Congress addressed a lot of the problems with chapter 11 that made it unrealistic for struggling small businesses by enacting subchapter V.

At their core, all Chapter 11s are bankruptcies and start with the same petition as Chapter 7 and 13. Successful ones manage to propose a plan, either of liquidation or reorganization.

• In a liquidating Chapter 11, the principles of the business are directly involved with selling the assets. This is typically desirable when the principles have personal liability on business debts and their knowledge of the industry will help them get the best price for the assets of a closing business.
• In a reorganizing Chapter 11, the plan proposed will allow the business to move forward without ongoing pressure from creditors.
• In both cases, the Automatic Stay and "first day motions" provide instant relief to the business, allowing it to move forward without fear of collection action.

What Subchapter V has done is to provide the same relief for companies owing $7,500,000 or less without the rules and procedures that made them overwhelming for most distressed businesses. Key differences of subchapter V.

• The Debtors retain the rights to own and manage their business.
• No Disclosure Statement required and only the Debtor can propose a plan.
• No quarterly payments to the US Trustee
• No creditors committee
• Plans are filed faster and have greater flexibility than a traditional 11.

If your small business has suffered from Covid restrictions and the downturn in the economy, don't give up. Call a bankruptcy lawyer who can help you understand what options may be available. I do free consultations and evaluations for any Northern Kentucky business struggling with debt.