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Bankruptcy is a stressful process for a small business, even if it’s filed as a Subchapter 5, which is usually a less complex process. If you have been through Subchapter V and come out the other side, how do you get your business back on track? The best person to answer that is a Massachusetts bankruptcy attorney.
Understanding the Role of Subchapter 5 Bankruptcy in Small Businesses
Chapter 11 bankruptcy is designed to allow businesses to continue operating while reorganizing their debts. Typically, under a standard Chapter 11 filing, the process involves considerable time for creditors to file a Proof of Claim, and if they disagree with the debtor’s reorganization plan, they may propose alternate plans. This can lead to prolonged court proceedings to resolve differences.
Recognizing the unique challenges faced by small enterprises, the Small Business Reorganization Act was enacted in August 2019 and took effect in February 2020, providing timely support during the Covid-19 pandemic. This law introduced Subchapter V of Chapter 11, specifically tailored for small businesses.
To qualify for Subchapter V, a business must have less than $7.5 million in debt. This subchapter simplifies the bankruptcy process in several key ways to help small businesses efficiently manage and overcome financial distress:
- Streamlined Process: Unlike traditional Chapter 11, Subchapter V does not require the debtor to file a Disclosure Statement, which expedites the reorganization process.
- Faster Reorganization: Debtors can propose their reorganization plan more swiftly under Subchapter V, facilitating quicker progression through bankruptcy.
It is important to note that the debt threshold for eligibility in Subchapter V is subject to adjustments, with potential changes anticipated in 2024. Businesses considering this option should consult with an attorney well-versed in bankruptcy laws to understand the current requirements and how any changes might impact their eligibility and decision to file under Subchapter V.
Implementing Changes After Emerging From Subchapter 5 Bankruptcy
For any business trying to move forward after a bankruptcy, there are some changes to make which will hopefully avoid ever having to file bankruptcy again. Carefully monitoring income vs. expenditures will be critical. Researching marketing initiatives that will be low-cost may help bring in new customers. Keeping your books very carefully and paying your taxes on time and in full will help.
Since getting credit will be the biggest challenge after bankruptcy, here are some tips:
- Partner with someone who has a good credit rating
- Reach out to smaller lenders in your community who may want to build up goodwill and help you stay afloat
- Investigate what grants or loans may be out there for small businesses in your community and what their requirements are
Another option, in the event you get into choppy financial waters, is to look into debt restructuring. That’s a way to keep creditors at bay without filing bankruptcy.
Need More Assistance? Consulting a Massachusetts Bankruptcy Attorney Can Help
Working your way through the complex financials of bankruptcy can be overwhelming, particularly when your business’s future is at stake. A Massachusetts bankruptcy attorney can help. They are equipped with the expertise to help you preserve your business and maintain your well-being throughout the process, while providing personalized advice tailored to your specific situation, ensuring you make informed decisions that align with your financial and business goals. Contact us today for a consultation.