How Chapter 11 Bankruptcy Subchapter V Can Help Your Struggling Small Business
The 2020 COVID-19 pandemic has hit the world hard. Even now, a few months after the start of the new year, many people and businesses are still recovering. Many others will never get over it, having no choice but to close their doors or change the way they operate for good.
Even if your business was not directly affected by the global pandemic with a loss of consumers or customers, you have probably still felt the effects. People had a lot less money to spend. Consumers did not leave their homes to engage with local businesses. Businesses have had to spend more to keep consumers and customers safe or to review their day-to-day operations to meet the new guidelines. It all added to a financial situation that left many businesses crushed under its weight.
If this sounds like the situation your small business is in right now, you might be wondering what you can do. If you’re hoping to find a way to stay in business while working through the mountains of debt you’ve racked up over the past year and a half, it may be it’s time to consider bankruptcy.
Why choose bankruptcy?
When people hear the word “bankruptcy” it is often associated with extremely negative associations. They think about financial mismanagement. They think of the worst case scenario. Indeed, bankruptcy can be one of these scenarios, but more often than not, it is part of the solution for individuals and businesses that have been going through tough times.
No one would say that the financial difficulties that most businesses are still grappling with right now are these companies’ fault. Rather, they are the result of an inevitable economic downturn that people around the world have experienced. As such, it should come as no surprise that so many people seek redress through measures such as bankruptcy – and that shouldn’t put them to shame, either.
Bankruptcy is a way to eliminate or reorganize debts that would otherwise be unmanageable. For many people, both individuals and businesses, this is the situation they have found themselves in lately. Their debt has reached levels that are simply no longer manageable, especially with the lower margins with which many are operating today. Choosing bankruptcy is one way to tackle this debt wisely, while keeping the lights on for owners and employees and service for consumers and customers.
There is nothing wrong with finding an option that works for your business when it comes to debt relief. There is nothing wrong with prioritizing this debt relief in tough economic times, and there is nothing wrong with doing so through a well-planned and executed bankruptcy. For more information on why your business might consider bankruptcy, discuss your options with a bankruptcy lawyer.
Go for bankruptcy and choose the right chapter
Okay, so you know that bankruptcy might be the best option for your business going forward, but what type of bankruptcy is the right choice for you? Fortunately for many small business owners, an adjustment made to the U.S. bankruptcy code in 2019 took effect in 2020 – at the height of the pandemic – and changed the options available for businesses struggling with debt.
This change resulted in the subchapter V of chapter 11 – but before we get to that, let’s discuss the different options available to businesses before this change took effect.
Initially, there were two main bankruptcy chapters available to businesses. These included:
- Chapter 7 – This type of bankruptcy is also called a “liquidation” bankruptcy. It is chosen by companies which no longer wish to operate or which are no longer viable. The downside to this option is that all of the company’s assets must be sold to offset the accumulated debts. The bright side ? Business owners will leave the discharge from this form of bankruptcy completely debt free.
- Chapter 11 – It is the chapter of bankruptcy that is chosen when a company wants to remain operational but has difficulty in repaying its debts. Also referred to as “reorganization” bankruptcy, it is precisely aimed at reorganizing debt into a more manageable payment schedule to allow the business and its owners to gradually repay the amount owed while keeping their doors open.
Both types of bankruptcy provided for what is called an automatic stay. This prevented creditors from personally suing the business or its owners for debts owed. This is and always has been one of the biggest advantages when choosing bankruptcy over other debt relief options because getting out of under the constant presence of debt collectors in your life can be. a huge relief.
Subchapter V of Chapter 11 Bankruptcy – A Boon for Small Businesses
For many businesses, Chapter 11 is the best choice. For businesses that owe $ 2.75 million or less – and that have accumulated at least 50% of that debt through commercial activities – the subchapter V of chapter 11 is an even better option. Called a few times Chapter Five Bankruptcy, this subchapter is a recent addition to the bankruptcy code which brings great benefits to filers.
Why choose the subchapter V of chapter 11 bankruptcy?
Here are some of the benefits:
– You can continue to operate your business while you are in bankruptcy proceedings.
– You do not need the approval of creditors, unlike a traditional Chapter 11 bankruptcy.
– You are the only one able to submit a reorganization plan. Your creditors cannot submit one on your behalf, which is different from how a traditional Chapter 11 bankruptcy works.
– Unlike the upfront payment required for administrative expenses in a traditional Chapter 11, a Sub-Chapter V bankruptcy allows you to reimburse these expenses in installments. This is a big advantage for small businesses who may not be able to afford a large lump sum payment.
Does this sound like a good plan for your struggling small business? For more information – and to find out if your business qualifies for this type of bankruptcy – contact the Van Horn Law Group. Their team of experienced professionals can help you navigate the process for the best possible result.