CARES Act Expands Small Businesses Access to Cheaper, Faster Bankruptcy Option


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As the coronavirus The pandemic is weighing on businesses in the United States, news bankruptcy option that has been expanded under the CARES Act may be able to help some small businesses get through the crisis.

Businesses across the country have come under pressure from foreclosures and forced store closings, leading to an increase in the total number of bankruptcy filings, Joe Pack, an attorney at Pack Law, told FOX Business.

“Much like the pandemic, there is really no discrimination,” Pack said. “Whether companies are sexy or not, big or not… it affects them all. “

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The good news for small businesses is that there is a cheaper and faster process they can choose from as opposed to the traditional Chapter 11 protection claim.

The Small Business Reorganization Act, which came into effect in February, added a feature to the bankruptcy code known as Subchapter V. The provision applied to small businesses with debt of 2,725 millions of dollars.

The CARES Act raised the debt threshold to $ 7.5 million, making the option more widely available to small businesses.

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WHAT IS SUBCHAPTER V?

It is a simplified, less expensive and more accessible bankruptcy process that allows small businesses to restructure without relinquishing control of operations.

Under subchapter V, only a debtor can file a plan, which must be done within 90 days of filing for bankruptcy. There is no unsecured creditors committee that must approve the plan. Instead, the plan should be approved as long as the debtor allocates discretionary income to plan payments over a three to five year period. The owner also does not have to pay the creditors in full to maintain control.

“A lot of people who explore Chapter 11 appreciate how expensive it is,” said Pack, who noted that Subchapter V allows small businesses to “get in and out quickly.”

The expanded threshold is expected to expire next year.

In terms of popularity, companies are still adapting to the idea of ​​Subchapter V, Pack said.

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He added that it doesn’t hurt for a business to explore the possibility of filing for bankruptcy, as a way to find out what options are available. This does not necessarily mean that you are leaving your business or that you are going to file a case.

Recently, a number of large retailers have filed for bankruptcy, including JC Penney, Neiman Marcus and J. Crew.

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