Can Businesses Benefit from Subchapter 5 in Chapter 11 Bankruptcy?

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Small businesses have been hit hard by the COVID-19 pandemic, inflation, and other economic difficulties in recent years. With many struggling to stay afloat amidst economic uncertainty, more and more businesses have been forced to consider bankruptcy. If you're a small business owner considering bankruptcy, you may have heard about Subchapter 5 in Chapter 11 bankruptcy. But what exactly is it, and how can it benefit your business? In this guide, we'll break down the basics of Subchapter 5 and explain how it can help small businesses restructure and emerge from bankruptcy stronger than ever.

What is Subchapter 5?

Subchapter 5 is a new addition to the Bankruptcy Code that was introduced in 2019 as part of the Small Business Reorganization Act. It is designed to make the Chapter 11 bankruptcy process more accessible and affordable for small businesses with debts of less than $7.5 million. Under Subchapter 5, small businesses can file for bankruptcy and restructure their debts without the need for a creditors' committee or a complicated reorganization plan.

How can Subchapter 5 benefit small businesses?

There are several ways in which Subchapter 5 can benefit small businesses:

1. Faster and more affordable bankruptcy proceedings: Subchapter 5 streamlines the Chapter 11 process, making it faster and more affordable for small businesses. This means that you can restructure your debts and emerge from bankruptcy more quickly, without incurring excessive legal fees.

2. More control over the reorganization process: Under Subchapter 5, small business owners have more control over the reorganization process. You can propose a plan of reorganization that is tailored to your business's specific needs, rather than being subject to the whims of a creditors' committee.

3. Reduction of debt: Subchapter 5 allows for the reduction of certain debts, such as unsecured debts, which can help small businesses emerge from bankruptcy with a clean slate.

4. Protection of personal assets: Small business owners are often personally liable for their business's debts. Subchapter 5 can help protect your personal assets by allowing you to restructure your business's debts without putting your personal assets at risk.

Is Subchapter 5 right for your small business?

Subchapter 5 can be a powerful tool for small businesses facing financial difficulties. However, it's important to note that it may not be the best option for every business. Before deciding to file for bankruptcy under Subchapter 5, it's important to consult with a bankruptcy attorney who can help you assess your options and determine the best course of action for your business.

At Weintraub Zolkin Talerico & Selth, we specialize in bankruptcy law, including for businesses, and have extensive experience helping small businesses navigate the Chapter 11 process. If you're considering bankruptcy for your small business, we can help you understand your options and develop a plan for a successful reorganization. Contact us today to schedule a consultation.

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