Business Bankruptcy

New Bankruptcy Law Could Save Small Businesses Slammed by Virus by Alex Wolf for Bloomberg Law

The U.S. lost 170,000 small businesses in the last recession. Whether things go better this time may depend on a new law aimed at easing their path through bankruptcy.

The Small Business Reorganization Act (SBRA), which went into effect just two months ago, was intended to make the process of reorganizing an insolvent company with less than $2.7 million in debt faster and cheaper. The $2 trillion coronavirus relief package enacted in March will allow as many as 70% of small businesses to qualify by temporarily raising the debt limit to $7.5 million for the next year. The one-year $7.5 million debt cap established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act follows the National Bankruptcy Conference’s recommendation to cover more small businesses. The nonpartisan group of attorneys, law professors, and bankruptcy judges said extending the relief would benefit business owners, suppliers, customers, employees and the wider economy.

The change could make a big difference for companies’ survival at a time when normal business activities across nearly every major industry are indefinitely put on hold and liabilities continue to accrue.

Still, the novelty of the law—and the tremendous uncertainty caused by the Covid-19 pandemic—means there are likely to be some delays and extra costs along the way. Because debtors don’t yet have the luxury of knowing when their businesses may return to normal, the SBRA’s shortened restructuring time frame isn’t necessarily advantageous.

Klenda Austerman Attorney, Eric Lomas spoke with Bloomberg Law about the difficulties businesses face when trying to predict its post-virus ‘new normal’ within the restructuring time frame. Read the entire New Bankruptcy Law Could Save Small Businesses article in Bloomberg Law by Alex Wolf here.

Eric Lomas has been practicing bankruptcy law for more than a decade. He can work with your business to determine the best strategy to sustain and hopefully flourish once the Covid-19 crisis is over. If you need assistance navigating government grants and loans, or are wondering if your business can take advantage of the Small Business Reorganization Act for a more streamlined approach to a Chapter 11 bankruptcy, contact Eric at elomas@klendalaw.com.