Small business owners filing for bankruptcy often feel as though they have limited options. They may not want to pursue Chapter 7 or liquidation proceedings because they hope to continue running the company without endangering its resources.
A traditional Chapter 11 bankruptcy is a lengthy process that can prove prohibitively difficult for small business owners to manage. In recent years, changes to federal law have created a new opportunity for small business leaders who face temporary financial hardship but who remain optimistic about their future prospects. A Subchapter V bankruptcy filing could be an option for struggling small business owners.
What makes a Subchapter V bankruptcy different
Subchapter V bankruptcy became an option as of 2019, when lawmakers adopted the Small Business Reorganization Act of 2019 (SBRA). Under this new federal bankruptcy statute, some small businesses are now eligible for a streamlined Chapter 11 bankruptcy process, known as a Subchapter V filing.
Qualifying small businesses can reorganize the company, renegotiate critical financial obligations and secure the other benefits of a Chapter 11 bankruptcy without the high costs and complexity typically associated with a reorganization bankruptcy. The filer remains in possession of the company, but the courts do appoint a trustee to oversee the reorganization plan.
A successful Subchapter V bankruptcy can preserve a company’s resources while addressing pressing financial issues. Small business owners concerned about their company’s finances may benefit from discussing different bankruptcy solutions with a legal professional. A Subchapter V bankruptcy case could be a viable solution for smaller organizations struggling with debt but capable of coming back strong.