Founding Partner, Robert Charbonneau, was recently quoted in The American Lawyer, in an article about the wave of small business Chapter 11 bankruptcies that may be on the horizon. Charbonneau shared insights on the role of the Subchapter V Trustee, and the impact that Subchapter V has had on creditors.
“I’m told from the creditor perspective, they like that the Subchapter V Trustee can act as a sounding board and get [creditors] the best outcome possible under the code,” said Charbonneau.
In 2019, Congress passed the Small Business Reorganization Act, or SBRA, creating Subchapter V of Chapter 11 of the US Bankruptcy code. This subchapter streamlines the Chapter 11 process for small business debtors, providing an alternative to the more time-consuming and costly reorganization of a traditional Chapter 11 case. Subchapter V allows a small business to spread its debt over three to five years, during which time the debtor must devote its projected disposable income to paying creditors. This model has benefited debtors in many cases by allowing them to spread out those payments over time, and it has benefitted their creditors by allowing them a meaningful recovery from debtors who many not have much money on hand but have a realistic expectation of income over time.
The small-business oriented Subchapter V, however, is now available to fewer debtors because the CARES Act provision that initially broadened eligibility during the pandemic to $7.5 million in qualifying debt expire last week and has since reverted to $2.7 million. Thus, cheaper and faster form of Chapter 11 is off the table for many business that fall in between those debt limits.
Law.com subscribers can read the full article at https://www.law.com/americanlawyer/2022/04/01/why-small-business-bankruptcy-could-lead-a-national-insolvency-wave/.