On August 23, 2019, the Small Business Reorganization Act was passed (SBRA) which was effective on February 19, 2020.
The goal of this law was to streamline the reorganization process and make Chapter 11 more affordable for qualified businesses.
Qualified Businesses
- ½ total debt from business
- $2.7M debt limit which increased for 1 year only to $7.5M
- Not single asset real estate
Benefits
- No need to solicit voting of impaired creditors- can confirm a plan without their consent
- No Disclosure Statement
- Administrative claims can be paid over time
- No automatic creditors committee
- Owners can retain equity without contributing new value
- Can modify 1st mortgage on primary residence if proceeds were used for the business
- Owners and responsible parties can now receive expanded discharges that match the business
- Can retain pre-petition creditors owed up to $10K
Requirements
- Plan must be filed within 90 days
- All payments to be made within 3-5 years
- Plan must now include the history of the debtor, liquidation analysis and projections
- Appointment of a Subchapter V Trustee who monitors the process and
- Must pay all disposable income over 3-5 year period for the plan to not treat creditors “unfairly” and is “fair and “equitable”
