According to the Bureau of Labor Statistics, the United States lost 20.5 million jobs in April, the largest decline since the market crashed in 1929. Major airlines, restaurants and big retailers such as JC Penney found themselves floundering as a result of COVID-19. According to the U.S. Chamber of Commerce, more than 40 percent of the nation’s 30 million small businesses could close permanently within the next six months.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, which was signed into law by President Donald Trump on March 27th, 2020, provides a $2 trillion economic relief package to protect Americans from the health and financial impacts of COVID-19. It also made changes to the United States Bankruptcy Code, specifically subchapter V which is the Small Business Reorganization Act (“SBRA”).
SBRA, entered on February 19th, will help small business debtors to reorganize their debts and keep their businesses. The SBRA was enacted to bypass obstacles that would have kept small businesses from reorganizing under chapter 11.
Those filing under subchapter V will experience shorter deadlines in the completion of the process and more flexibility in the negotiation of restructuring plans with creditors. The small business debt limit under subchapter V was increased from $2,725,625.00 to $7,500,000. This limit will remain for one year from the date of enactment of the CARES Act. Then it will revert back to the original amount of $2,725,625.
Benefits of filing subchapter V
- Because the temporary higher debt limit gives more access to the more efficient and simple process, the cost to reorganize can be less costly.
- No creditors’ committee is required, and therefore, the debtor does not incur any fees to these professionals.
- A small business trustee will be appointed to oversee each case.
- A debtor’s owner may be able to keep their equity interest even if the proposed repaymet to creditors may be less than 100%.
- Instead of a cash payment at the time a reorganization plan is approved by the court, the debtor has more flexibility to pay administrative claims over the life of the plan.
- No disclosure statement is required to be filed by debtor.
- In addition to the modifications made to subchapter V, the CARES Act also made temporary revisions to chapter 7 and chapter 13 of the bankruptcy code. Any payments made by the federal government in regard to COVID-19 are excluded for the purposes of calculating a debtor’s income in determining eligibility.
Economic Injury Disaster Loan
Small business owners in all the United States, Washington D.C., and territories can apply for an Economic Injury Disaster Loan advance of up to $10,000. If granted, the loan does not have to be repaid and was created to provide economic relief to businesses that are suffering financially as a result of the COVID-19 pandemic.
What does the future hold?
There will be an influx of bankruptcy filings as a result of this pandemic, and this financial crisis will impact our economy for generations. The Small Business Reorganization Act offers hope. In addition to assisting small businesses, the law firm of Certilman Balin offers pre-bankruptcy and bankruptcy assistance to larger businesses, single asset real estate companies, and individuals considering a bankruptcy option. Certilman Balin also counsels a variety of creditors of companies and individuals experiencing financial difficulties, including landlords, lenders, trade creditors and judgment holders. The law firm of Certilman Balin offers pre-bankruptcy and bankruptcy assistance to larger businesses, single asset real estate companies, and individuals considering a bankruptcy option, as well as creditors of companies and individuals involved in their own bankruptcies, including landlords, lenders, trade creditors and judgment holders.
For further information about how you can apply for bankruptcy relief during these difficult times, please contact Richard J. McCord or Jaspreet S. Mayall of our Bankruptcy/Debtor and Creditor Rights Group.
Partner Richard J. McCord may be reached at rmccord@certilmanbalin.com or 516.296.7801.
Partner Jaspreet S. Mayall may be reached at jmayall@certilmanbalin.com or 516.296.7061.