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Legal Alert: Bankruptcy Options for Small Businesses in the COVID-19 Pandemic - The Small Business Reorganization Act

On February 19, 2020, the Small Business Reorganization Act (the "SBRA") became effective. The SBRA created a new subchapter to the bankruptcy code, which is commonly referred to as Subchapter V. The purpose of Subchapter V filing is to reduce the cost and expense of small business bankruptcy reorganization compared to traditional Chapter 11 reorganization. The SBRA provides small businesses a more viable option when compared to the alternative bankruptcy filings. In general, the SBRA does not require that a disclosure statement be prepared and served, trustee fees are reduced, and the debtor files the plan rather than a creditor.In addition, the debtor must file a plan within ninety (90) days, which is a faster track than other bankruptcies.

Prior to the CARES Act, to be eligible to apply for relief under Subchapter V, a debtor could not have total debt exceeding $2,725,625.00. As a result of the significant impact of COVID-19, the CARES Act, which became effective on March 27, 2020, included the first amendment to Subchapter V filings. More specifically, the CARES Act increased the debt limit to $7,500,000.00. However, this threshold is only applicable for one year after the CARES Act became effective. Following the one-year period, the limit will revert to $2,725,625.00.In addition, to be eligible, a debtor cannot be publicly traded, a single asset real estate company, and/or cannot be affiliated with other debtors with combined debt exceeding the $7,500,000.00 limit.

Bankruptcy can be the legal "first aid" to survive the coronavirus crisis.If a business is considering filing for a Subchapter V filing, it is important that they consult with their attorney as soon as possible to determine the appropriate time for filing and to ensure they take full advantage of any benefits that may have sunset provisions under the CARES act.

To find out more about Subchapter V filings and whether it is the right option for you, reach out to Scott Marcus, Esq. and Jessica Witmer, Esq. at Nehmad Perillo Davis & Goldstein, by calling (609) 927-1177. Also watch our two part webinar regarding the CARES Act and Bankruptcy law which can be found at https://www.npdlaw.com/practice/bankruptcy.

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