Written by Andrew Dunning

The New “Chapter V” Bankruptcy Filing for Small Business

The Small Business Reorganization Act (“SBRA”), signed into law in August of 2019, added a new type of bankruptcy to the longstanding slate of filing varieties: the Chapter V.  A new subchapter to chapter 11 of the Bankruptcy Code (codified under §§ 1185-1195, inclusive), empowers small businesses to seek bankruptcy protection without many of the impediments associated with a traditional chapter 11 filing. 

 

Specifically, Chapter V filings provide for the appointment of a standing private trustee to oversee the claims distribution process, while allowing the filing entity to remain a debtor-in-possession. There are numerous omissions compared to a chapter 11 filing, as well: debtors do not pay quarterly trustee fees, there is no committee of unsecured creditors, and the creditor need not submit a disclosure statement with its reorganization plan.  Another notable distinction is that Chapter V debtors submit their plan on an expedited basis: within 90 days of filing. 

 

In effect, these changes reduce the overall administrative cost and burden for a chapter 5 debtor and simplify the process for a small business to file its plan and ultimately obtain confirmation.  Effective February 19, 2020, Chapter V protections are available to entities with less than $2,725,625 in aggregated, non-contingent debts.  The recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) amended the SBRA to increase the eligibility threshold for Chapter V filings to entities with debts of up to $7,500,000.  The heightened cap under the CARES Act applies to all Chapter V filings for one year following its March 27, 2020, effective date.   

 

Entities seeking to evaluate their bankruptcy options are encouraged to consult with counsel regarding the viability of filings under chapter 11 or the newly introduced Chapter V.   

Practicing Attorneys

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