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Bankruptcy Law: Small Businesses in the US Can Now Go Bankrupt More Easily

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Up to now, reorganizing under Bankruptcy Code chapter 11 was too expensive and onerous a task for most small businesses. However, thanks to the Small Business Reorganization Act which will soon be coming into effect, small business owners will have a better way to survive in the long-term.

At the present time, the U.S. economy is relatively strong. Many small businesses nationwide are thriving, so it may seem like an inopportune moment to be considering the possibility of bankruptcy.

However, it’s inevitable that at some point, the economy will take a downturn, and when this happens many of those small businesses will experience financial hardship, sometimes being forced into declaring bankruptcy.

The Small Business Reorganization Act 

The Bankruptcy Code made provision in chapter 11 for business reorganization. Yet, in the past, this was too costly and onerous for most owners of small businesses. A Lexology report revealed that between 2008 and 2015, 18,000 bankruptcy cases involving small businesses were filed.

Of those, under 27% resulted in confirmed reorganization plans. Now, business owners are set to find relief from worry in the event of a recession. In August 2019, President Trump signed the Small Business Reorganization Act into law. When it takes effect on 19th February 2020, it will affect any company with under $2,725,625 of debts.

For small business owners who are seeking advice from a bankruptcy lawyer in Orlando, this legislation change represents a huge step forward. Until recently, the law favored bigger companies. However, now, those running smaller enterprises can also experience legal advantages. 

How Does The New Law Help Small Business Owners?

This new law will give any small business owner 90 days in which they can file their reorganization plan, and the rules for extending are much easier. There will also no longer be any requirement for business owners to fully repay their outstanding debts to retain the ownership of their business.

Instead, those debts will able to be paid down with a newly created formula that projects the business’ disposable income over a 3-5 year period. Business owners will also no longer need to assign “new values” to equity interests. Rather, they will only need to ensure they aren’t discriminating against creditors with equity which is equitable and fair.

Small business owners will also no be required to appoint standing trustees who will oversee their bankruptcy case. There will no longer be any need to form a creditor committee to vote on plans or approve disclosure documents.

As a result, the process is streamlined and costs are saved, while it becomes harder for business owners’ homes to be taken away by creditors. Not only that, but the courts will be able to confirm the reorganization plan more quickly and administration expenses payments will be allowed to be extended.

Will Small Business Owners Benefit?

Many small business owners make mistakes in the course of running their company. Some mistakes can have significant financial consequences. The change in the law will mean that they will be more likely to retain ownership of their business, even if they face financial problems. Instead of going out of business, they will have a chance of reorganizing.

This will help the firm to survive and keep staff in employment. It will also allow the business’ leaders a little extra time to work out their debts with creditors and develop a plan to move forward. 

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