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New Chapter 11 process for small businesses proposed

Chapter 11 bankruptcy can provide an important route forward for businesses that are struggling with debt. However, companies can encounter challenges when it comes to pursuing this route. Some argue that this may especially be the case for small businesses.

Arguments have been leveled that the current Chapter 11 system here in the U.S. isn’t well-designed for smaller companies. Worries over the costs and ownership implications of the Chapter 11 process may be leading some small business owners to stay away from this bankruptcy option.

Recently, legislation has been proposed aimed at making Chapter 11 a more attractive option for small businesses struggling with debt. This bill is the Small Business Reorganization Act of 2018. It was introduced to Congress late last month.

The bill would create a new Chapter 11 process that small businesses could use. To use this new process, a company’s debt would have to be at or below around the $2.5 million mark.

The new process would have various differences from the standard Chapter 11 process, including that it would:

  • Have a 90-day deadline for companies for submitting a repayment plan
  • Reduce the steps involved in judicial approval of a repayment plan
  • Soften the debt repayment requirements for a business owner to retain control of his or her company
  • Not have automatic appointment of unsecured creditor committees
  • Have some new limits on a bankrupt company’s ability to sue creditors to reclaim prebankruptcy payments

Proponents of the bill claim that this new process could help make Chapter 11 bankruptcy quicker and less expensive for small companies.

One wonders what will happen with this proposal in Congress. What do you think of the bill? Do you think it should be passed?

Bankruptcy laws have big impacts on what kinds of options companies struggling with debt have, and what pursuing these options would involve. Skilled bankruptcy attorneys can help owners of businesses that are dealing with overwhelming debt understand what options are available to them under such laws (including any recent changes to such laws) and look into what options would fit best given their needs.

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