New Chapter 11 on the Horizon – Too little too late.

The business world has been a buzz over the past 2 weeks with news of the new Small Business Reorganization sub-chapter of Chapter 11.  This new sub-Chapter, which takes effect in March of 2020, offers a streamlined reorganization procedure and substantive relief from some of the more onerous requirements of traditional Chapter 11 cases, to assist small businesses get back on their feet.

Of course, like most Bankruptcy Code amendments, this law does not take effect upon signing.  The law has a 180 effective date.  This means that people who would fit the code provisions for relief under the new sub-chapter will have to choose between delaying a filing or filing under the old code.  In what appears to this author to be a blunder (but is by definition the “wisdom of Congress”) there are no amendments to traditional Chapter 11 to make it possible to convert an existing Chapter 11 case into a Small Business Case.  Some Courts may very well accept a workaround to this problem by accepting a dismissal of a Chapter 11 followed by a new filing under the new sub-chapter, but, in theory, creditors could object to such a process.

This means that small businesses facing delinquent employment taxes, or narrowing borrowing base calculations, or any other cash flow shortage resulting in a need for breathing room to figure out how to reorganize, may be in serious jeopardy if they erroneously wait for the new law to take effect thereby driving their faltering business into failure before taking action.

Most people approaching a Bankruptcy lawyer say something like, “… I have tried everything else, this is the last resort… .”  Most sophisticated people know that Bankruptcy works best when used timely and do not get hung up on the “moral” perception of the “B” word.  Small business owners facing hard times should not allow some amorphous understanding of a new law on the horizon to be the emotional excuse prevent them from seeking professional help as early as possible.

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.

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