In times like these, running a small business can leave you with a lot of financial uncertainty. If your debt is building up and you’re not sure what you can do to keep your business afloat, bankruptcy can be an option.
With the Small Business Reorganization Act, it’s much easier for small business owners to retain ownership of their business after declaring bankruptcy. To help Georgia residents learn the ins and outs of the new act, H. Lehman Franklin, P.C., put together this guide.
What Are the Main Bankruptcy Chapters?
Every bankruptcy case is different depending on the nature of the debtor’s employment and what assets they own. There are several different bankruptcy chapters one can file under, and it’s important to determine which chapter is the right choice for you. The main bankruptcy chapters you’ll encounter include:
- Chapter 13 Bankruptcy is for people who have a steady income and want to pay off their debt in manageable chunks over time.
- Chapter 7 Bankruptcy is for people who can’t currently pay off their debt but may be willing to liquidate some of their assets, although liquidation does not often occur.
- Chapter 11 Bankruptcy is for businesses and consumer debtors with lots of assets to consider. There are special provisions for individuals or corporations that qualify as small business debtors, which can make the Chapter 11 process quicker and easier.
- Chapter 12 Bankruptcy is a unique type of bankruptcy for family farmers and fishermen.
What is the Small Business Reorganization Act?
Before the Small Business Reorganization Act, many considered Chapter 11 bankruptcy a complex and overly costly method for small businesses to file, especially for individuals who own their own business.
Chapter 7 was often a simpler option for individuals because it lets someone discharge their loans, but there was a chance of losing control of your business as well. This is because Chapter 7 does not provide significant options for reorganizing debts so that the business operations can continue and be profitable.
In order to help small businesses more easily manage their debt, the Small Business Reorganization Act was designed to simplify Chapter 11 bankruptcy for corporations and individuals that qualify as small business debtors.
This method makes the Chapter 11 process more streamlined and affordable while still allowing businesses to restructure their debt and retain control over their business.
How Does Chapter 11 Work Under the Small Business Reorganization Act?
Similar to what would happen for an individual filing under Chapter 13, small businesses—which may be corporations or individuals so long as they meet the qualifications for being a small business debtor—filing under Chapter 11 will have a trustee appointed to them.
This trustee will work to make sure the reorganization of the business’s debt stays on track. They may be a mediator between the debtor and creditors to help resolve any disputes and move the case forward. This ensures a plan that all creditors agree on may be filed and approved by the court.
How Chapter 11 Differs Under the SBRA
Unlike most Chapter 11 cases, small businesses filing through the Small Business Reorganization Act don’t typically have to prepare a disclosure statement on the debtor’s plan. This makes the Chapter 11 filing process much easier, as receiving approval of a disclosure statement often can be a big hurdle in a Chapter 11 not filed under the provisions of the Small Business Reorganization Act.
A case filed under this Act also does not have to comply with the absolute priority rule, which is a complicated rule and problematic for many Chapter 11 cases. Best of all, this Act makes it easier for courts to confirm a plan.
Plans can be approved in one of two ways—with or without the consent of all creditors. If a plan is approved with consent, then the case is over quickly, debts are discharged, and a debtor moves forward making payments to creditors as outlined in the plan. Even if creditors do not consent, the court can approve a plan so long as the plan does not “discriminate unfairly” and is “fair and equitable.”
Chapter 11 Approvals Under the SBRA
Under this type of plan approval, debtors make plan payments over three to five years through the trustee, and then a discharge is entered. This way of approving plans is a big change, as a regular Chapter 11 plan not under the Act must have at least one impaired creditor consent to it in order to be approved.
Deadlines for filing certain documents and having certain matters considered by the court are shorter than in a typical Chapter 11 case. While these quick deadlines streamline a case and help it to be approved in a short period of time, it also means that debtors need to have their financial records organized and be prepared to provide documents and information concerning their financial situation quickly.
An experienced attorney can help guide you through the Chapter 11 process!
File for Bankruptcy with the Small Business Reorganization Act Today
If you’re like many small business owners, you’re probably proud of the business you run. We understand that pride and want to help you keep the business you’ve built by assisting with the Chapter 11 process under the Small Business Reorganization Act.
We can help you file all of the necessary paperwork, work with your trustee, and negotiate with creditors in an effort to obtain a plan that allows you to restructure your debts into manageable payments and keep the doors of your business open.
At H. Lehman Franklin, P.C., we are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code. We provide federal debt restructuring help. To see if we can take your case, just schedule a free consultation with our bankruptcy lawyers today!