Although a lot of people talk about the decline of small businesses in America, fewer have clear ideas on what to do about it. Now, a major new change to the Chapter 11 bankruptcy code might help some small business owners who could not qualify for debt relief before, thus giving them a second chance remain in their communities.
The Small Business Reorganization Act of 2019 (SBRA) creates an entirely new section of the bankruptcy code designed to lower the cost and remove some of the barriers that stand between small businesses and the reorganization courts.
Changes meant to give small businesses real options
Of course, SBRA is complex, because a lot needed to change in the previous system. But consider just a few features likely to benefit many debtors/small business owners.
Every SBRA case will have a Department of Justice trustee to help develop and implement a workable plan. Despite the trustee, most debtors will remain a “debtor-in-possession.” To keep the overall cost to the debtor more manageable, SBRA carefully controls the fees the debtor must pay for these trustee services.
With new powers modeled after Chapter 12 cases, a debtors’s plan may now modify a home equity loan they used to invest in their business. The plan may be able to “cram down” the loan, extend the term or get a change in the interest rate.
A filing under SBRA does not need to include the large, detailed and burdensome disclosure statement usually required in Chapter 11. Instead, SBRA requires a quicker and less expensive accounting of liquidation estimates, projections and a business history.
A new phase in bankruptcy law and maybe American business
Although little noticed by most Americans so far, SBRA is a major addition to the bankruptcy laws. It should now begin helping many small businesses that are struggling to stay afloat. Because it is a permanent change in the rules, it might play a role in making America a more small-business-friendly environment long into the future.