Congress Makes Permanent Expanded Bankruptcy Relief for Small Business Debtors

On June 21, 2022, Congress made permanent the increased debt limit for small business debtors seeking to reorganize their finances under SubChapter V of Chapter 11. When passed in 2019, Congress established a debt limit of $2,725,625 for classification as a small business debtor. In response to pandemic-related distress, the CARES Act increased the limit to $7,500,000 on a temporary basis. That measure expired on March 29, 2022.

The congressional action makes permanent the $7,500,000 limit for classification as a small business debtor. While the action is a significant expansion of SubChapter V eligibility, there remain exclusions preventing single asset real estate companies and affiliates of issuers of securities from seeking SubChapter V relief.

SubChapter V is especially beneficial to small businesses because it involves lesser amounts of administrative expense and it changes the rules for plan confirmation to recognize a small business owner’s ‘sweat equity’ as a key element of the reorganization process.

MOL’s team members are well-positioned to assist business debtors and creditors in all aspects of the insolvency process.

This article is for information purposes only and is not intended to constitute legal advice.