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SBRA expected to be a good friend to some small businesses

If you have watched a small business suffer through bankruptcy, or if your own business has ever explored bankruptcy, you may want to update your files on the topic. Chapter 11 reorganization has new possibilities thanks to the Small Business Reorganization Act of 2019 (SBRA), passed in August and in effect as of February 19.

SBRA should make the bankruptcy process less costly and easier for small businesses. Even after they have filed under traditional Chapter 11, in recent years courts have turned most businesses down most of the time. With SBRA, the expectation is that lower costs and fewer hurdles will make reorganization more accessible to firms that would benefit from it.

An affordable trustee to oversee the process

An important feature of SBRA is that the U.S. Trustee Program appoints an independent trustee to every case. The trustee’s job is to work with the debtor and creditors to develop a workable plan. SBRA makes sure the fees small businesses must pay for these trustees are manageable.

A likely and critical result is that lenders should be more confident in the outcome with the trustee involved.

Less burdensome disclosure statement

Another way SBRA lowers the hurdles and expenses relative to traditional Chapter 11 is that you do not have to include a disclosure statement as part of your filing.

You must still make some of the same disclosures, such as liquidation estimates and a capsule business history. However, writing the standard disclosure statements is a time-consuming job, and an expensive one. SBRA should greatly reduce that burden.

Eligibility cutoffs and other details abound

A qualified business attorney can help you with the many details that, as you can imagine, you must confront despite the simplified process.

For one especially important example, to apply under SBRA the portion of your overall debt (individual or company) that derives from business/commerce must be 50% or more.

Also, to apply under SBRA, the total value of your current (“noncontingent, liquidated”) debts cannot be more than $2,725,625.