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How the CARES Act Benefits Small Business Bankruptcy Filers

Small businesses around the country, including many in South Dakota, are struggling in the face of the ongoing coronavirus pandemic. Stimulus efforts like the CARES Act’s Paycheck Protection Program and various Small Business Administration actions have certainly helped, but consumer spending has dropped so much that many small businesses are finding it harder and harder to survive. These companies may want to consider the CARES Act’s provisions aimed at helping small businesses reorganize through Chapter 11 bankruptcy.

The Small Business Reorganization Act — also known as Subchapter V of Chapter 11 — is a streamlined procedure that lets small businesses continue operating while restructuring their debt. The CARES Act has allowed more businesses to file for relief by temporarily raising the limit on maximum debt from $2.7 million to $7.5 million. A small business can now file for Subchapter V reorganization so long as:

  • The business has less than $7.5 million in debt.
  • At least half of that amount is business debt, not the personal debt of the owner(s).

The temporary increase is effective only until March 27, 2021, at which time the debt limit will go back down to $2.7 million. Therefore, if you own a small business with more than $2.7 million in debt and you believe you may need to reorganize, your Chapter 11 case must be filed prior to that date. You should have discussions with a South Dakota bankruptcy lawyer as soon as possible because it will take some time to analyze your situation and prepare the necessary petition and documentation, and you don’t want to miss the deadline.

Subchapter V is very helpful to small business owners because it simplifies the otherwise cumbersome and expensive Chapter 11 process. Specifically, Subchapter V:

  • Eliminates many of Chapter 11’s reporting requirements
  • Usually does not require the appointment of a creditor committee
  • Allows easier modification of loans secured by a principal residence
  • Limits certain creditors’ rights
  • Allows a court to approve a business’s reorganization plan even if every creditor raises objections
  • Allows the debtor to pay for administrative and court expenses as part of the plan rather than in one lump sum up-front

The bottom line is that the CARES Act gives more small businesses access to Subchapter V relief during the pandemic. If you think your business may benefit from reorganization, it is a good idea to start the process as soon as possible.

Anker Law Group helps South Dakota small businesses get through the Subchapter V bankruptcy process. Our Rapid City attorneys would be happy to discuss how the CARES Act’s provisions may help you qualify. Call 605-519-5967 or contact us online anytime to schedule a consultation.

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