If you are a small business struggling to survive you may have leverage you can use to control your liabilities and stay in business. The Small Business Reorganization Act of 2019 is a change to Chapter 11 bankruptcy law  and generally applies to business debtors with secured and unsecured debts less than $2,725,625. More on this below. The key point of this writing is that the you can use the threat of invoking the act to renegotiate your liabilities, avoiding the cost involved in hiring a lawyer to navigate the processes of the act.

Here are the key benefits of the act.

  1. Only the debtor can propose a plan of reorganization, avoiding the need to get approvals from creditor classes.
  2. The act removes the requirement that equity holders provide “new value” to retain their equity interest without paying creditors in full. The act only requires that the plan is fair and equitable and provides that all of the debtor’s projected disposable income will be applied to payments under the plan (or the value of property to be distributed under the plan is not less than the projected disposable income of the debtor).
  1. If you provided your residence as collateral for business loans the act protects your home equity from seizure by creditors.
  2. The act now stretches the payment of administrative expense claims out over the term of the plan instead or requiring payment on the effective date of the plan.
  3. The court must grant the debtor a discharge after completion of all payments due within the three to five year plan schedule. The discharge relieves the debtor of personal liability for all debts provided under the plan (with two minor exceptions).

The act is helpful to small businesses but keep in mind that a federal process is a process, taking much time and energy to complete. My experience is that most creditors are sympathetic to your plight and may be having their own financial problems. I can help you work with them to your mutual benefit as I have done with many companies during three other economic downturns.

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