If you’re thinking of hiring a Chapter 11 bankruptcy attorney to protect your business during the financial stress of the coronavirus outbreak, you are not alone. According to Sarah O’Brien, personal finance reporter for CNBC, the number of filings for Chapter 11 bankruptcy in April rose 26%. Considering that many businesses have been able to survive simply because of emergency support—such as a forgivable Paycheck Protection Program loan from the federal government—it is likely that that rate will increase by mid-summer.
The good news is, many small businesses that may have been barred in the past because of cost can now access this essential form of relief thanks to recent legislation.
The Challenge of Chapter 11 for Small Business
The primary obstacle that small businesses face when filing Chapter 11 bankruptcy has historically been the cost. When a business files for relief under this chapter, it can negotiate with creditors to receive better terms and balances for its debts without losing the assets it needs to stay in business. Once the business and creditor agree on a plan, a committee made up of the business’s seven largest unsecured creditors then votes on whether to approve it. With enough votes, the court confirms the new plan.
The reason the process is so expensive is that the committee engages in an investigation of the business, which often requires assistance from attorneys and other experts at the expense of the debtor. In many cases, this process can take up to 18 months to complete.
A Chapter 11 Bankruptcy Attorney Can Help You Navigate Complicated Law
Fortunately, recent legislation—including provisions in the CARES Act and the Small Business Reorganization Act—has opened the doors wider for small businesses in need of relief. The Small Business Reorganization Act established Chapter 11, Subdivision V to the United States Bankruptcy Code.
Under Subdivision V, the process is faster, with most debtors submitting a new plan within 90 days of filing. Most importantly, the court no longer appoints a creditor oversight committee. Instead, the bankruptcy acts more like a Chapter 13 bankruptcy, with a bankruptcy trustee overseeing the case. With no creditor committee to vote on a plan, the judge will confirm a plan that is fair and equitable.
In most cases, a Chapter 11 bankruptcy attorney is a requirement to file for Chapter 11, Subdivision V.
Bankruptcy Can Provide Relief, but You May Have More Options
Before deciding to take advantage of bankruptcy, you should consider whether other remedies exist. For instance, creditors are likely to work with you to avoid bankruptcy. To find out more about what options you have before filing, speak to an experienced attorney about your situation.
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