Ty Schoenhals Oklahoman Q & A: New Bankruptcy Laws Benefit Small Businesses
September 24, 2019
By: Ty E. Schoenhals
Ty E. Schoenhals is an Associate practicing with Hall Estill’s bankruptcy and restructuring group.
On Aug. 23, President Donald Trump signed the Small Business Reorganization Act of 2019 into law, which provides small businesses an expedited form of Chapter 11 bankruptcy. What is Chapter 11?
Chapter 11 is the provision of bankruptcy law that allows businesses to reorganize and restructure their debts. However, successful Chapter 11 cases are rare for small businesses because they are so expensive and complex.
What's the purpose of the new law?
The new law, which takes effect in February, aims to make it faster, easier and less expensive for small businesses to reorganize successfully in bankruptcy. Under the Bankruptcy Code, a small business is a business with debts less than $2,725,625.00. It does not matter if those debts are secured by mortgages or liens on property.
How does the new law increase the speed of bankruptcy?
A small business must propose the plan within 90 days of filing for bankruptcy; as opposed to the traditional Chapter 11 case, which may last months or years before a plan is proposed.
Are small business owners allowed to retain their assets?
Under a traditional Chapter 11, the debtor could not retain any of its property unless the creditors agreed, the plan provided for the full payment of all creditors or the debtor contributed new capital to the business. Under the new law, as long as the small business contributes its projected future disposable income over the next three to five years of the plan, the small business retains its assets.
What are some other benefits of the new law?
Many small business owners mortgage their homes to support bank loans to the business. The new law makes it easier to restructure certain of those loans, so the home is not lost in bankruptcy. Additionally, much like a Chapter 7 or Chapter 13 case, the new law provides for the appointment of a trustee to facilitate and oversee the case and assist the debtor in the reorganization process.