NEW! Small Business Relief Under Subsection V of Chapter 11

  • Save crucial business assets

  • Eliminate unsecured business debts

  • Stop bank levies

  • Free up cash flow

  • Continue business operations

Despite the mean-spirited bankruptcy reform legislation passed by Congress in 2005, once in awhile something good happens for the little guy. Congress has amended Chapter 11 of the Bankruptcy Code to make it easier for small businesses to file Chapter 11 reorganization. Before this new legislation, it was nearly impossible for small businesses to reorganize due to costs of Chapter 11 and certain creditor-biased restrictions in the existing Bankruptcy Code (such as the “Absolute Priority Rule”).

To qualify, the business must have no more than $2,725,625 worth of debt. Of this debt, 51% must be commercial (not personal) debt. The plan gives the debtor sole discretion to file a plan of reorganization within 90 days. (That means you can file immediately to stop creditor collection actions while still having time to work out a reorganization plan.) There are no “creditor committees” — that is, a large group of unsecured creditors ready to block reorganization and otherwise give your business a hard time.

Secured business debts can be “crammed down” — meaning you pay only what the collateral is worth, not what you owe. And a big bonus: If you took out an SBA loan for your business secured by your home, that mortgage can be modified though Subchapter V. It can help save your home in situations where it otherwise might not have been possible.

This makes sense for small businesses that are able to generate good cash flow and become profitable once debts are eliminated and/or reorganized.  Subchapter V is considerably more time consuming than the average Chapter 7 or Chapter 13 bankruptcy and requires a $20,000 retainer to start, but it is money well spent for businesses with an otherwise bright future that is facing a short-term debt crisis. If this makes sense for your business, contact us today.

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