Protect Your Small Business Even Through Bankruptcy

There is often a misconception that bankruptcy must sink a small business. In the past, this may have been true. Both Chapter 7 and Chapter 11 have limitations that can make them unattractive to small businesses.

In Chapter 7 bankruptcy, a trustee is generally appointed to liquidate the business’ assets and distribute funds to creditors, meaning the business owner cannot continue with control of their operations as it was before. In Chapter 11 bankruptcy, the bankruptcy court requires increased oversight over the payback plan and costs incurred by the business after bankruptcy. The small business would likely be required to pay for this oversight in the form of a committee, which means that the payback structures are often too expensive to continue operating responsibly. There was no alternative to these two options until recently.

How The Small Business Reorganization Act Offers An Alternative

As of February 23, 2020 the Small Business Reorganization Act (SBRA) allows for small businesses to reorganize in a way that allows business owners to maintain some control over operations, while also keeping payback costs reasonable.

The SBRA does this by combining features of both Chapter 7 and Chapter 11 bankruptcy to make a middle ground. Under the SBRA, small business owners and operators can:

  • Maintain better control. Small businesses that qualify for bankruptcy may proceed with a trustee, but the trustee’s role is to simply oversee, meaning that a business owner can maintain more control of operations.
  • Save money on expenses associated with bankruptcy. The SBRA allows for less strict oversight in terms of the payback structure. Unlike in Chapter 11 bankruptcy, where all businesses are subject to a committee overseeing them, under the SBRA only certain businesses would have to have a committee overseeing them, so it is less expensive.
  • Have their plan confirmed more easily. There are many strict requirements for small businesses to undergo either Chapter 7 or Chapter 11 bankruptcy. The SBRA relaxes many of these, allowing small businesses to get relief more easily.

Overall, while small businesses must still meet certain requirements to qualify for relief under the SBRA, it is much easier to both declare bankruptcy and to continue operating afterwards.

Contact The Firm Today

All types of bankruptcy can seem complicated to the layperson, and it is even more stressful when it is your small business on the line. To speak with an attorney about your options, please contact Law Offices Robert M. Stahl LLC today. You can reach us by phone at 410-561-6797 or by email 24/7.