Congress is currently considering expansion of Chapter 11 subchapter 5 bankruptcy to assist small-sized firms. In light of the current impact of the pandemic on small-sized firms this extension is vital.

Sub-chapter 5 extension to help small-sized companies

In the year 2019 Subchapter 5 was added to Chapter 11 of the U.S. Bankruptcy Code in attempt to make reorganization bankruptcy easier for small-sized businesses. The law was enacted in the year 2020. As it continued to cause destruction on thousands of small businesses, subchapter 5 was enacted. In the past homeowners who owed $2.75 million and less were able to file for bankruptcy.

But, as the situation with this Bankruptcy noted were getting worse, the anticipated increase in small business bankruptcy resulted in Congress to increase the sub-chapter 5’s scope of access to $7.5 million for a year under the CARES Act (Coronavirus Aid, Relief, and Economic Security). If Congress does not extend the maximum amount of $7.5 then it will expire in March.

So far more than 2800 files were submitted to the program since program’s inception. The number is expected to grow significantly as small-scale entrepreneurs are confronted with supply shortages in the form of high inflation, gas prices, not to mention the long-lasting consequences from the pandemic. The landlords and banks are intensifying efforts to recover overdue arrears on rent and loans. These factors are likely to lead to an increase in bankruptcy filings.

Claim sub-chapter 5 Bankruptcy

According to the original intent to be, you must engage in the business of your choice and your debt must not exceed $2.75 million to be able to claim. Furthermore 50% of the debt has to come from business operations and the amount of debt can’t be included in the debt that are owed to employees of the company. Additionally, if your primary business is the acquisition and operating one property, you’re not qualified.

Only your business can submit the plan application and not like the other Chapter 11 cases that allowed creditors to file plans for your company. A special trustee is appointed to supervise the running of the business and provide recommendations regarding the Reorganization plan.

In relation to the fees for the plan, subchapter 5 is also a consideration of the issues faced by small firms. Contrary to Chapter 11 cases, you do not have to pay an administration fee at the time that the plan starts. The fees can be paid for the duration for the program, which may be as long as three or five years.

How Subchapter 5 helps small businesses

With Sub-Chapter 5 small companies that struggle to pay their debts but still make profits have a simpler option to pay the debt. If a business decides to file an Subchapter 5 case, creditors must sign approved by the courts for three-to-five-year repayment plans. This includes the option to limit debts that are not secured like credit cards.

In Subchapter 5, you can run your business until you have completed the payment plan required.

If you’re thinking of making bankruptcy an option, make certain to consult an attorney for bankruptcy.

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