- Posted on: Apr 22 2021
By: W. Calvin Smith
On March 27, 2021, President Biden signed the COVID-19 Bankruptcy Relief Extension Act (the “Extension Act”) into law as Pub.L. 117-5. In relevant part, it extends by a year increased debt limits for small businesses and individuals who want to take advantage of filing bankruptcy under Subchapter V of Chapter 11.
Subchapter V became law pursuant to the Small Business Reorganization Act of 2019. Subchapter V provides eligible debtors, both small businesses and individuals, with a much more debtor-friendly path through Chapter 11 bankruptcy. Some of those benefits include (a) not having a committee of unsecured creditors appointed (except for cause, after notice and a hearing) whose attorney’s fees would be paid by the debtor’s estate, (b) 90 days from the petition date for the debtor to file a plan, (c) elimination of the ability of other parties to file a competing plan, (d) a much easier road to confirmation of a Chapter 11 plan with elimination of the absolute priority rule and the Court’s ability to confirm a plan even over the objection of all creditors, (e) elimination of the need to file a disclosure statement, (f) the appointment of a Subchapter V trustee whose fees are relatively minimal and whose main purpose is to facilitate the acceptance of a consensual plan by all parties, and (g) other benefits.
Originally, only debtors with “aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount, not more than $2,725,625…not less than 50 percent of which arose from the commercial or business activities of the debtor” were eligible to file a Subchapter V case. However, due to the pandemic, that debt limit was increased by the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to $7,500,000.00. That increase was set to expire on March 27, 2021.
A bipartisan group of Senators and Representatives came together to introduce and pass the Extension Act, and President Biden signed it on March 27, 2021. The Relief Act extends the sunset of the relaxed requirements to be eligible to file a Subchapter V case. The increased debt limit of $7,500,000.00 now remains in effect until its new sunset date, March 27, 2022.
Whether you are an individual struggling with substantial business income and are ineligible to file Chapter 13 or a business that does not want the cost or hassle of a traditional Chapter 11, this increased debt limit for Subchapter V of Chapter 11 could make bankruptcy a much more attractive option and provide a means for dealing restructuring your debt. The debt limit may not be extended again next year, so now may be the time to consider your options.
To learn more about bankruptcy, visit our Corporate Bankruptcy page or contact our Corporate Bankruptcy partner lead below:
David Ludwig is a partner at Dunlap Bennett & Ludwig. His practice focuses on civil litigation in the areas of patent, trademark, copyright, internet / domain names, commercial transactions, government contracts, community associations, and bankruptcy law / creditors’ rights, as well as trademark and copyright prosecution, and corporate and small business law. He is co-chair of the firm’s litigation group, supervising several lawyers, and he has served as an attorney for local and national clients in federal and state court litigation and arbitration matters, as well as in bankruptcy proceedings, TTAB disputes (trademark Notice of Opposition and trademark Petition to Cancel proceedings), domain name disputes (ACPA, UDRP, and URS proceedings), government contract bid protests and Tucker Act litigation, and numerous other forums and proceedings.
To learn how Mr. Ludwig can assist you with your legal needs, click here.
Posted in: Bankruptcy