The Small Business Reorganization Act of 2019 (“SBRA”) went into effect in February 2020, adding a new “Subchapter V” to Chapter 11 of the Bankruptcy Code.  The SBRA streamlines the process of Chapter 11 bankruptcy reorganization for small businesses and reduces the costs of those proceedings.  The SBRA was originally available to debtors with non-contingent, liquidated debts totaling $2,725,625.00.   However, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress on March 27, 2020, the debt limit for eligible SBRA filers has increased to $7,500,000.00.  This significantly broadens the number of businesses who may utilize the more efficient SBRA reorganization process.

The benefits of the SBRA procedure include eliminating some of the more costly and lawyer-intensive aspects of traditional Chapter 11 relief, such as filing a disclosure statement and payment of United States Trustee fees.  The SBRA also changes rules regarding treatment of business loans secured by a business owner’s residential mortgage.  It creates the position of “Subchapter V Trustee” in an effort to improve the reorganization process.  If it works as intended, the SBRA may reduce the time needed to confirm a reorganization plan, reduce the costs to creditors, and provide a greater chance for effective reorganization.

Davidson Summers, APLC has extensive experience in the field of Chapter 11 reorganization, having served as both primary and local counsel for debtors, creditors’ committees, secured creditors and other claimants.