A change to Chapter 11 bankruptcy rules “could be a lifeline to small businesses,” and those rules have been recently expanded in response to the COVID-19 pandemic. Known as Subchapter 5, the new law opens up Chapter 11 bankruptcy to businesses that in the past had been too small to reorganize under that part of the Bankruptcy Code.

As recently reported in a New York Times article on the changes, the Chapter 11 process has traditionally long and expensive, making it a feasible option only for larger businesses. However, the newly enacted Subchapter 5 rules:

“[G]ive firms with less than $2.73 million in debt the power of reorganization with a few key simplifications. Two main changes: A judge can enforce a restructuring plan even if creditors don’t like it, and the owner can continue running the business.”

In response to the COVID-19 pandemic, the new rules have been expanded even further:

“Congress recognized that this tool could be a lifeline to small businesses trying to get through an economic shutdown. So as part of the federal stimulus program, it expanded eligibility to firms with up to $7.5 million in debt. That change means Subchapter 5 could help up to 70 percent of all businesses that might file for bankruptcy.”

If your small business is struggling and you need advice on your options, including Subchapter 5 or other bankruptcy options, contact the business bankruptcy attorneys at Keech Law Firm.