A Unique Time for Relief
In 2005, Congress enacted BAPCPA and forever changed consumer Bankruptcy law. In the run up to October 2005, the effective date, a flood of people who had been on the edge about filing for Bankruptcy rushed to file for protection under Chapter 7 while they could still avoid having to make payments to a trustee for a 5 year period under Chapter 13.
In February 2020, Subchapter 5 of Chapter 11 came in effect. Bankruptcy lawyers all over the country were anticipating a busy summer as business owners, whose debt was less than $2.7m, could reorganize under Chapter 11 without having to sell off their assets, raise new money, or pay 100% of their debt, just to keep their business. It meant that businesses, and individuals with mostly business debt, could get real relief, real debt forgiveness, even though they owned too much to be a Chapter 13 case and made too much to be a Chapter 7 case.
Along came COVID and with it a series of administrative and private policy decisions which essentially allow debtors to forego borrowing base tests, inventory reports, and even debt service payments. All of which created a sense of limbo and provided the appearance of relief from debt problems for businesses facing insolvency. This is a good thing. No one wants to spend the money to go into Bankruptcy if they do not have to.
But, in and amongst the other provisions that came with COVID was an increase in the debt limit for filing a Subchapter V bankruptcy from 2.7 million to 7.5 million. This provision will sunset, expire, in March of 2021 unless extended. Watch the media, consult a Bankruptcy Attorney, if your small business has more than 2.7 million in debt but less than 7.5 million, you do not want to miss the boat.
This article is written by an attorney at Attorney Donald Wyatt PC. Always consult an attorney before making any legal decisions. To make an appointment today, please click here to contact us.