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Chapter 11 Expanded For Small Businesses

For some time, filing Chapter 11 was out of the question for many small businesses. The process of reorganizing your business under a Chapter 11 filing can be costly and untenable for those companies with fewer assets. This complicated process is something that a company in distress might not be able to handle on their own but should reconsider under the Small Business Reorganization Act.

The Small Business Reorganization Act of 2019

A new change in the law governing Chapter 11 filings has made better conditions for small businesses hoping to reorganize. Dubbed the Small Business Reorganization Act of 2019 (SBRA), these changes go into action in February of 2020. If you own a small business, these are the changes to the law that you need to know if you’re considering a reorganization:

  • You have more options for negotiating with your creditors: The small business owner can confirm a reorganization plan with the court, despite a creditor’s disagreement.
  • You alone can file a Chapter 11 plan: The SBRA prevents other parties – like your creditors -from filing alternative Chapter 11 plans. This alteration puts more power in the hands of the small business owner.
  • Your process will be faster and more economical: These changes take into consideration the high cost that could come from prolonging the reorganization process. Where small businesses might have sold off their assets rather than reorganize, now they might be able to avoid many of the high fees and legal costs associated with a reorganization.
  • You don’t have to lose personal property associated with the business: The business owner will be able to make changes to a home mortgage that was used to fund their business. This addition is particularly helpful for owners whose personal and business assets are difficult to separate.

Exploring your options

The Small Business Reorganization Act still has some gray areas that could reveal unforeseen consequences for a small business negotiating Chapter 11 plans. Despite this, the plan seems to be a major stride forward for companies that do not wish to liquidate their assets and close shop without a chance of renewal. In an area where the needs of larger businesses have historically come first, this new act levels the playing field for small businesses.

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