Higher debt ceiling extended for small business bankruptcies
We have already informed you that if you are a small business that had to file for bankruptcy in order to save your business, you may be able to benefit from sub-chapter V of Chapter 11 of the Bankruptcy Act.
The new subsection, which came into effect in February 2020, creates a leaner and more cost-effective Chapter 11 reorganization path for small business borrowers. Under the law initially passed, a debtor (whether a legal person or an individual) had to be in a business to be eligible for Subchapter V and their total debt – secured and unsecured – must be less than $ 2,725,625. At least half of this debt must come from doing business.
In March 2020, in response to the COVID-19 pandemic, Congress passed the CARES Bill, which raised the debt ceiling of Subchapter V to $ 7,500,000 for one year. The higher debt ceiling should expire on March 27, 2021. Late last week, the United States House of Representatives passed the Senate-revised version of HR 1651, the “COVID-19 Bankruptcy Relief Extension Act of 2021,” to break the $ 7,500,000 debt ceiling through March 2022. President Biden signed the measure on Weekend.
Subchapter V has proven popular with over 1,400 cases submitted over the past year. Approximately 1/3 of these cases would not have been able to proceed according to sub-chapter V without the higher debt limits. The American Bankruptcy Institute reports that Subchapter V cases have higher plan confirmation rates, faster plan confirmations, more consensual plans, and improved cost effectiveness than if these cases had been filed as traditional Chapter 11.
© 2021 Ward and Smith, PA. All rights reserved.National Law Review, Volume XI, Number 89