Tampa Bay Bankruptcy and Debt Relief Attorney
Chapter 11 and Subchapter V
The COVID 19 pandemic has placed incredible financial stress on small businesses. This economy doesn't mean you have to go out of business. There are options that provide for business debt restructuring that will help your business survive.
Some predict that there will be a tidal wave of bankruptcies following the COVID 19 pandemic. https://www.nytimes.com/2020/06/18/business/corporate-bankruptcy-coronavirus.html
Many small businesses are facing more debt than they can handle due to rent and contractual obligations, reduced income from fewer customers and government restrictions on the ability to do business, and COVID 19 issues affecting the entire State of Florida.
Relatively new changes to the bankruptcy laws - and just in time - were passed by the U.S. Congress and took effect in February of 2020 that offers more streamlined procedure for small businesses to survive debt through bankruptcy. Previously, a business bankruptcy under Chapter 11 of the bankruptcy code previously involved many costs to the debtor and lengthy timelines.
The new changes to the bankruptcy code streamlined the process and reduced many costs.
LLC Bankruptcy Options
Under the Small Business Reorganization Act of 2019, businesses with non-contingent liquidated debt (secured and unsecured) totaling up to $2,725,625 may qualify for expedited bankruptcy relief under Bankruptcy Chapter 11 and Subchapter V, a law that took effect in February of 2020. The $2.7 million limit was temporarily changed by Congress in response to COVID 19 and was raised to $7.5 million for one year (starting March 27, 2020).
Commercial debt restructuring is the process offered through the bankruptcy court. Prior to the changes in Subchapter V, lenders and creditors would have an opportunity to object to the bankruptcy and often thwart the business owner's efforts to restructure. However, under the new procedures, the lenders and creditors no longer have the power to control the outcome of the bankruptcy. New streamlined procedures allow the judge to make that call.
Another benefit of Subchapter V is that the process is less costly than a Chapter 11 and has built in procedures to attempt to streamline the process and afford small businesses faster and more efficient debt relief.
The Fine Print of Eligible Debts for a Subchapter V
For a debt to qualify for discharge in a Chapter V bankruptcy, it must be non-contingent liquidated debt (secured and unsecured) totaling up to $2,725,625 or $7.5 million (for bankruptcies filed March 27, 2020 - March 27, 2021).
What does that mean?
A "noncontingent debt" is one that exists prior to the filing of the bankruptcy and not a debt that will arise based on some future event or occurrence (such as a pending lawsuit). As long as the debts affecting your business exists now, or at the time you file, they should qualify as "noncontingent debt."
The next criteria is that the debt be "liquidated debt," which means that the amount of the debt is certain and not fluctuating in value based on economic or other variables.
"Secured and unsecured" means that the debt can either be attached to a particular piece of property or real estate as collateral such as a mortgage on a house or a loan on a piece of machinery.
Bankruptcy is not a free way of restructuring your debt, however, there are certain assets that are exempt from being liquidated (sold) to satisfy your debts, but it is a swift and certain way to financially survive so that your small business can continue to serve its customers in the future.
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