More than half of small businesses close down and cease to operate within five years of being incorporated, but once a business reaches a certain size, it takes on an ability to reinvent itself. If you think that big corporations can shed their debts and morph into themselves, like a snake shedding its skin or a butterfly emerging from its chrysalis, you are onto something. Yes, it is unfair to the little guys among us. 

It is expensive to be poor, whether you are an individual or a business. Consider that some people wait months until tax refund time before they can file for Chapter 7 bankruptcy, while the folks with a big enough salary simply file for Chapter 13 the minute the thought pops into their heads and do not have to put any of their assets at risk. The federal Bankruptcy Code has implemented rules to make it easier for small businesses to rise from their own ashes the way that big businesses do, but a pandemic-era expansion of one of those rules has recently expired. 

For help navigating small business bankruptcy in these ungenerous times, an Oakland Chapter 11 bankruptcy lawyer.

The Small Business Reorganization Act and Business Bankruptcy Cases

Chapter 11 bankruptcy is a bankruptcy category specifically for small businesses, and it is a marathon of red tape, to put it mildly. These are some of the procedures involved in a typical business bankruptcy:

·   Establishing a court-appointed creditors’ committee

·   Proposing a debt repayment plan and presenting it for a vote

·   Paying quarterly fees to the Department of Justice to oversee your bankruptcy case until you complete the repayment plan

All of this takes place at the expense of the business seeking bankruptcy protection. If the process is successful, the owners of the business get to retain ownership of it and discharge the debts that the creditors’ committee agrees to discharge. Businesses that cannot afford to do this have no choice but to go out of business.

In 2019, the federal government implemented the Small Business Reorganization Act (SBRA). It enabled small businesses filing for bankruptcy to complete the bankruptcy process without the more costly and cumbersome Chapter 11 procedures. This law added Subchapter V to the Bankruptcy Code, whereby small businesses seeking to discharge less than $2.7 million in business debts are eligible for the simplified process.

The Days of COVID Relief are Over, Especially for Small Businesses

During the COVID-19 pandemic, small businesses that took on debts to continue operating and paying their employees and suppliers helped to keep the economy afloat. The pandemic relief efforts expanded the SBRA exemptions so that they applied to businesses seeking to discharge up to $7.5 million in business debts. Those expansions expired in the summer of 2024, so now the best bet for businesses seeking to discharge more than $2.7 million and less than $7.5 million in debts is to work with a debt relief lawyer about settling their debts out of court.

Contact the Law Office of Melanie Tavare About Small Businesses With Big Debts

A debt relief lawyer can help you if you are struggling with business debts in excess of $2.7 million. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a case evaluation.