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Is Bankruptcy and Option for Your Small Business?

Traditionally, small businesses only had one option when it came to bankruptcy.  That would be Chapter 7 liquidation.  For businesses that wanted to continue as an operating business, they could only utilize Chapter 11, which is reorganization.  Chapter 11, of course, had substantial paperwork hurdles.  Now, we have a new choice - Subchapter V.

Subchapter V Bankruptcy

The Small Business Reorganization Act of 2019 created a new option called Subchapter V.  This process is a much more streamlines option.  The main goal of Subchapter V is to restructure the loans of the business to make it more viable to continue as an ongoing operating business.

This creates an opportunity for our business law clients to have an opportunity to create a business that can continue operating even after several shocks to the business.

Business Debt Limitations

Unfortunately, Subchapter V is not available to all small businesses.  There are a few key considerations and limitations, which includes a limit on the maximum amount of debt.  For nearly all small companies, this amount is $2,725,625 in unsecured and secured debt.

CARES Act

In April of 2020, Congress passed the CARES Act, which raised the debt ceiling to $7,500,000.  This ceiling increase is temporary but does increase the amount substantially.

As of today, this increased ceiling will revert back to the $2,725,625 on March 27, 2021.  If your business is struggling, then you must try and quickly determine whether this restructure is something that makes sense for you.  The streamlined filing can be a significant incentive to work out current issues, especially as the pandemic economic issued continue to unwind themselves.

Recent Business Issues

In the last several years, the economy has contributed to many small companies struggles.  Further, given the really low interest rates that exist, it has made borrowing money more attractive.  So, many companies (this includes corporations, limited liability companies (LLCs), s-corporations and partnerships) have gone further and further into debt in order to bring in additional cash flow to weather the economic storm.  As that loans have piled up, the overall debt load has started to create cash flow problems for those businesses.  So, having the ability to restructure those loans would alleviate much of that debt cash flow concern.

Conclusion

For struggling businesses, it makes sense to analyze whether your business needs to have its debt restructured.  If so, using the new Subchapter V and its streamlined filing process is an attractive avenue to keeping your business moving forward.  See more at https://kcbusinesslawgroup.com/