San Diego Subchapter 5 Bankruptcy Lawyer

San Diego Subchapter 5 Bankruptcy Attorney

For many small business owners in San Diego, CA, facing surmounting debt can bring a significant amount of worry and stress. With traditional bankruptcy filings leaving these same businesses struggling to reorganize and survive, the Small Business Reorganization Act (SBRA) allows for a new Subchapter V filing that is designed to address the unique circumstances facing small businesses. Passed in February 2020, a small business with less than $2,725,625 in debt, or less than $7.5 million through March 2024, can take advantage of these new provisions as a part of COVID relief.

At Bravo Law, APC, we understand what your small business means to you and the impact the debt of the business can have on you and your family. Our bankruptcy attorneys have the skill and experience necessary to help you navigate these difficult circumstances and help you find the debt relief you need to reorganize your business through Subchapter V bankruptcy.

The Small Business Reorganization Act

In a Chapter 11 bankruptcy case, a business will use its available assets to pay off creditors while agreeing to reorganization structures with them. Often, businesses lose some control of their organization in the process as they work to fulfill the debt. They may be required to liquidate their assets or use future profits to satisfy the monies owed. While Subchapter V has similar requirements, it takes into account that a small business may not have the same assets or resources available to overcome surmounting debt. The SBRA was created in order to allow these types of businesses to maintain operations and create a plan that fits the small business.

To qualify for Subchapter V bankruptcy, a small business must not only be under the debt limit, but the majority of the debt must be related to the commercial business activities of the company. The SBRA provides the following provisions for small businesses:

• Trustee appointment. The trustee that is appointed to your bankruptcy will be unaffiliated with your company. Their sole role will be to help ensure you are making the appropriate payments as outlined in your company’s reorganization plan. They will also oversee the timely and proper disbursements.
• A reorganization process that is streamlined. Already facing mounting debts, small businesses will benefit from the lower costs of less complicated procedures involved in a Subchapter V filing. Unlike a traditional Chapter 11, the process does not require approval for the proposition of a reorganization nor the votes to approve the plan, which means the debtor can file a plan keeping control of their business. The usual creditor committees are not required, but there will be a status hearing 60 days after filing.
• Eliminating the “new value” rule. The equity holders in a small business do not have to provide “new value” in order to keep their investment in the debtor.
• Allows for prolonged claims of administrative expenses. While the small business will still incur administrative expenses under SBRA, these payments do not have to be made at the time the plan is implemented. The administrative claims can instead be paid throughout the duration of the plan.
• Modifications allowed for residential mortgages. In some circumstances, the business debtors may qualify for residential mortgage modifications.
• No need for disclosure statements. Unless ordered by a court, a disclosure statement is not required under SBRA as opposed to a filing for Chapter 11. Disclosure statements may include a company’s operational history and the value of its assets that can be liquidated in order to satisfy its debts.

FAQs About San Diego, CA Subchapter 5 Bankruptcy Laws

What Is the Process for Subchapter V?

After petitioning for a Subchapter V bankruptcy, a debtor has up to 90 days to produce a reorganization plan. This plan, unlike Chapter 11, does not have to be approved or voted on by a committee of creditors. Sixty days after filing, the debtor will provide an update on the progress of the reorganization. After a plan is in place, a trustee will be appointed to ensure proper and on-time payments to creditors.

What Is a Subchapter V Bankruptcy?

Subchapter V bankruptcy is a type of debt relief system that applies to small businesses. Passed in February 2020, the Small Business Reorganization Act allows small businesses to maintain operations while working to relieve their struggles in paying back their debts. The SBRA allows for provisions that better fit the needs of a small business as opposed to Chapter 11 for big businesses.

Who Is Eligible for Subchapter V?

To qualify for Subchapter V, certain stipulations must be met. First, the person seeking Subchapter V must be a person. Secondly, that person must be engaging in business or commercial activities. Thirdly, they must have secured and unsecured assets that total less than $2.7 million or, through March 2024, less than $7.5 million.

What Are the Rules for Subchapter V?

In order to file for Subchapter V bankruptcy, the debtor must specifically state they are doing so. If they fail to acknowledge this, then the bankruptcy filing will be treated as a Chapter 11 case. When declaring the type of bankruptcy, the debtor must also provide balance sheets, statements of cash flow, operational statements, and federal tax returns.

San Diego Bankruptcy Attorney

Owning a small business is an exciting opportunity for anyone. Finding success, however, can be a long and complicated road. Even for businesses that are seeing profits, debts can continue to mount, making it difficult for the small business to get ahead. Under common Chapter 11 bankruptcy, many small businesses are left without the support they need to continue to operate while creating a plan to eliminate their debt. Subchapter V bankruptcy allows small business owners to continue to keep operational ownership of their company while having a plan to relieve their debts.

At Bravo Law, APC, your small business matters to us. Bankruptcy can be difficult and confusing, but with our team, we can help guide you through the process so that you can stay focused on growing your business and providing your customers with high-quality goods and services. Contact Bravo Law, APC, today, and let an experienced business lawyer help you.