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Small Business Bankruptcy

Small Business Bankruptcy

80 to 90 percent of business bankruptcy filings come from small businesses.  Under new bipartisan legislation set for consideration in 2019, small businesses with less than $2.5 million in debt would be able to file bankruptcy more cheaply and quickly.

The proposed bill would add a subchapter to the Bankruptcy Code specifically for small businesses.  These businesses would be treated more like individuals than corporations.

Under the bill, a standing trustee would oversee every case.  As a result, small business owners will have an easier time of keeping their ownership interests.  As Brooklyn Law School professor Edward Janger observed: “It’s a well-balanced bill that streamlines the process for small businesses that need it and increases recovery for creditors where it is used.”

This bill allows small business owners to keep their ownership interests without having to pay senior creditors in full or use funding plan payments to provide new value.

Under the current system, a small business might negotiate with creditors or use state and federal receiverships and assignments for the benefit of creditors rather than apply for Chapter 11 bankruptcy protection.