Recent Changes to Bankruptcy Law: What You Should Know About the Small Business Reorganization Act

Recent changes to U.S. bankruptcy law make it easier for small businesses and individuals to file for bankruptcy. More specifically, the Small Business Reorganization Act of 2019 (H.R. 3311), as well as the HAVEN Act (H.R. 2938) and the Family Farmer Relief Act of 2019 (H.R. 2336) have been signed into law and took effect in 2020. Congress passed the bills in early August, and President Trump signed them into law at the end of that month. According to a press release about the legislation from the American Bankruptcy Institute (ABI), the ABI supported all three bills and believes that they will help to modernize the U.S. Bankruptcy Code.

We want to provide you with more information about these changes to U.S. bankruptcy law, paying particular attention to the Small Business Reorganization Act and how it will impact Chapter 11 bankruptcy cases.

Learning More About the Small Business Reorganization Act of 2019

The Small Business Reorganization Act (SBRA) took effect on March 1, 2020, and it provides relief to small businesses with debt totaling less than $2,725,625. The SBRA will provide important relief to small businesses struggling with debt, and it is important for business owners in the Tampa Bay area to learn more about how it might be able to benefit them.

Most significantly, the SBRA added a new subchapter V to Chapter 11 of the U.S. Bankruptcy Code. This subchapter makes it easier, in effect, for small businesses with a limited amount of debt to obtain bankruptcy protection under Chapter 11 and to retain control of their businesses. An article in The Guardian outlines some of the key changes that will take effect through the SBRA, which include:

Business owners will have 90 days to file a Chapter 11 reorganization plan;
Business owners will not be required to repay their debts in full if they want to retain ownership of their businesses;
Rather than requiring business owners to repay debts in full in order to retain ownership, businesses will be able to pay down debts with a new formula under the SBRA that projects the business’s disposable income over a repayment period of three to five years;
Business owners will not be required to assign new values to equity interests, but instead will only be required to make sure that no creditor faces discrimination and that equity is “fair and equitable,” according to the article; and
Small business owners will be required to appoint a standing trustee who will oversee the bankruptcy case instead of forming a creditor committee that votes on the proposed reorganization plan and approves (or does not approve) the disclosure document.

As the article underscores, all of these changes “are more debtor-friendly for the small business owner than in the past,” give that each of these changes “streamlines the process and saves costs.”

Getting the Facts About the HAVEN Act and the Family Farmer Relief Act of 2019

In addition to the SBRA, the two other recent changes to U.S. bankruptcy law will impact individuals and small business owners alike. In short, the HAVEN Act will allow disabled veterans to exclude disability payments when they calculate whether they can pass the “means test” in order to qualify for Chapter 7 bankruptcy. Accordingly, more veterans will be eligible for Chapter 7 bankruptcy because of the HAVEN Act.

The Family Farmer Relief Act of 2019 will result in changes to Chapter 12 bankruptcies. Once the law takes effect, family farmers with higher debt loads (up to $10 million in debt as opposed to the current $4 million) will be eligible for Chapter 12 bankruptcy.

Contact a Tampa Bankruptcy Lawyer for More Information

If you have questions about your eligibility for bankruptcy, particularly given the recent changes to U.S. bankruptcy law that will take effect next year, you should get in touch with a Tampa bankruptcy attorney to learn more. An advocate at our firm can analyze the details of your case today and discuss your options for bankruptcy protection. Contact Samantha L. Dammer to learn more about the bankruptcy services we offer to individuals and businesses in the Tampa Bay area.

Resources:

abi.org/newsroom/press-releases/senate-passes-small-business-reorganization-act-haven-act-and-family-farmer

theguardian.com/business/2019/sep/08/us-small-businesses-bankruptcy-trump-reorganization-act

/the-haven-act-and-veterans-benefits-in-bankruptcy/