Call Us Today Click To Call 303-623-HELP (4357)
1159 Delaware St. Denver, CO 80204
Monday - Friday 9am to 5pm

The Benefits of Subchapter 5 Bankruptcy

Small business owners face numerous challenges in today’s competitive marketplace. Many businesses are struggling to stay afloat due to the economic downturn caused by the COVID-19 pandemic.

For some small businesses, bankruptcy may be the only option. Fortunately, the Small Business Reorganization Act of 2019 (SBRA) has made it easier for small businesses to file for bankruptcy and restructure their debt through Subchapter 5 bankruptcy.

Let’s take a closer look at the benefits of Subchapter 5 bankruptcy for small business owners.

Overview of Subchapter 5 Bankruptcy

Subchapter 5 bankruptcy is a new bankruptcy option created by the SBRA. It allows small businesses with up to $7.5 million in debt to reorganize their finances and repay their creditors over a period of three to five years. The process is designed to be faster, easier, and more affordable than traditional bankruptcy, making it an attractive option for small business owners who are struggling to stay afloat.

Benefits of Subchapter 5 Bankruptcy

Here are some of the key benefits of Subchapter 5 bankruptcy for small business owners:

  • Simplified Process: Subchapter 5 bankruptcy is designed to be a simpler and more streamlined process than traditional bankruptcy. The filing requirements are less onerous, and the process can be completed more quickly.
  • Lower Costs: Subchapter 5 bankruptcy is also more affordable than traditional bankruptcy. There are fewer administrative costs, and small businesses can keep their assets without having to sell them to pay off creditors.
  • Retain Control of Your Business: Unlike traditional bankruptcy, which may require a trustee to take control of your business, Subchapter 5 bankruptcy allows you to retain control of your business throughout the process. You can continue to operate your business while you restructure your debt and repay your creditors.
  • Faster Debt Repayment: Subchapter 5 bankruptcy allows small businesses to repay their debts over a period of three to five years. This is a shorter time frame than traditional bankruptcy, which can take up to ten years to repay debt.
  • Creditor Cooperation: The SBRA requires creditors to participate in the reorganization process in good faith. This means that creditors are required to negotiate with small businesses and come to a reasonable agreement on repayment terms.
  • No Means Test: Unlike traditional Chapter 11 bankruptcy, which requires a means test to determine eligibility, Subchapter 5 bankruptcy does not have a means test. This means that more small businesses may be eligible to file for bankruptcy and reorganize their finances.

Is Subchapter 5 Bankruptcy Right for Your Small Business?

Subchapter 5 bankruptcy can be a powerful tool for small businesses struggling with debt. However, it’s important to consider whether it’s the right option for your business.

Here are some factors to consider.

  • Debt Level: Subchapter 5 bankruptcy is only available to small businesses with up to $7.5 million in debt. If your debt exceeds this amount, you may need to consider traditional bankruptcy or other options.
  • Cash Flow: Subchapter 5 bankruptcy requires small businesses to have enough cash flow to make regular payments to creditors over a period of three to five years. If your business does not have enough cash flow to make these payments, you may need to consider other options.
  • Business Viability: Subchapter 5 bankruptcy is only a viable option for small businesses that are still viable and have a chance of turning around. If your business is no longer viable, you may need to consider other options, such as liquidation.

Subchapter 5 bankruptcy is a powerful tool that can help small businesses restructure their debt and regain control of their finances. With simplified filing requirements, lower costs.

Call Berken & Cloyes at 303-623-4357 and let us help guide you.