SUBCHAPTER V BANKRUPTCY: HELPING JACKSONVILLE’S SMALL BUSINESSES THROUGH THE COVID-19 RECESSION OF 2020
TRY SPEAKING TO YOUR CREDITORS FIRST
If your small business is being crushed by debt, consider speaking to your creditors before exploring other options. Creditors may be open to negotiation, but they are rarely the first to reach out.
Direct negotiation can help you avoid bankruptcy, which is typically preferred. If your creditors still refuse to negotiate, even after your attorney contacts them, then you may consider other alternatives such as bankruptcy.
Traditionally, small business owners had few options under the Bankruptcy Code when faced with a short-term financial hardship. Chapter 11 was intended for large corporations; the process can take a long time, it is often expensive, and it is usually most friendly to creditors. Without a viable alternative, most small businesses were forced to file for Chapter 7 bankruptcy, which is a complete liquidation of all business assets.
THE 2019 SMALL BUSINESS REORGANIZATION ACT (SBRA) - SUBCHAPTER V BANKRUPTCY
Thankfully, the bankruptcy process for small businesses underwent substantial, positive changes recently. With the introduction of the Small Business Reorganization Act of 2019, small businesses may now reorganize debt through a streamlined process that is less costly and requires a smaller time commitment from the court, the business owner, and the attorney.
The SBRA became effective in February of 2020, just as the current recession began. If you are considering taking advantage of the program, don't wait too long. The current rules, expanded somewhat under the CARES Act, are set to expire in 2021.
IMMEDIATE RELIEF UPON FILING - THE AUTOMATIC STAY
An automatic stay goes into effect immediately upon filing the Subchapter V bankruptcy. This stay forbids creditors from contacting you or attempting to collect on any debts you might owe.
The stay is temporary, and is intended to give the court time to sort out facts surrounding your situation.
MINIMUM QUALIFICATIONS TO FILE A SUBCHAPTER V BANKRUPTCY
More than half of your total debt must be classified as "business" debt;
your total debt cannot exceed $7,500,000;
you must currently be engaged in commercial business activity;
and your proposed repayment plan must be "fair and equitable."
NOTE: this is not an exhaustive list. Your attorney will define the terms above and discuss other requirements during your consultation.
FILING THE SUBCHAPTER V BANKRUPTCY
As with any bankruptcy, there are costs associated with filing a Subchapter V Bankruptcy. The court fee is around $1,170, and there is an additional administrative fee of $550. During the current coronavirus pandemic and resulting quarantine, courts are being exceptionally lenient, allowing payment plans--after the case is filed--to cover these costs.
In a Subchapter V Bankruptcy, the court has wide discretion to approve your repayment plan, regardless of whether your creditors agree to it. Still, it must be "fair and equitable," meaning for the next few years (usually 3 to 5), all excess income left over after reasonable operational costs are paid (these costs include reasonable wages for yourself) will go to repay the debts owed to your creditors.
If your business continues to decline after you file, you may still have the option to liquidate the company under Chapter 7 Bankruptcy in certain instances.
A bankruptcy trustee is normally appointed to supervise your bankruptcy. The trustee's role in a Subchapter V case is similar to that of a Chapter 12 or Chapter 13 trustee. Through your attorney, you will provide documentation surrounding your situation to the trustee for review.
If you are in the greater Jacksonville area and hire Cain & Cain to represent you, we will help devise and submit a plan that is fair and equitable to the trustee and creditors.
Depending on what happens next, the trustee may collect payments from you each month and then distribute the proceeds to your creditors. The process is more complex under certain circumstances however, especially if creditors aren’t agreeable to the proposed repayment plan. As stated above, the process can take three to five years to complete, at which time you may be granted a discharge of any remaining debt.
NEXT STEPS - USING THE BANKRUPTCY CODE TO SAVE YOUR BUSINESS
If you are interested in learning more about Subchapter V of Chapter 11 Bankruptcy, let's talk. We will meet with you to examine the history of your business and review your future projections. We can then determine whether your company would benefit from a small business bankruptcy and debt reorganization plan.
Want to know what chapter you qualify for? Just click here to fill out our bankruptcy questionnaire.
If you are in greater Jacksonville, call or text us anytime at 904-877-1010 and set up a free, confidential consultation with an experienced, local bankruptcy lawyer.
Cain & Cain, PL is a law firm based in the metro Jacksonville, Florida area. You can reach us anytime at 904-877-1010. We are a debt relief agency that helps people file for debt relief under the bankruptcy code. The information contained in this article does not constitute legal advice or the formation of an attorney/client relationship. Laws and rules change often, so there is no guarantee the information contained here is still valid. Always consult a licensed attorney before making decisions that might impact your legal rights. No representation is made that legal services offered by Cain & Cain, PL, are greater than those offered by other legal counsel. Do not rely on any information found here; instead, call us at 904-877-1010 if you are in northeast Florida to schedule a free consultation. If you are not in Florida, seek out a reputable attorney who can advise you on your situation.
