A New Small Business Bankruptcy Law Takes Effect, Just In Time
Beleaguered companies and their lawyers are weighing whether to use bankruptcy court to reorganize.
Formal bankruptcy, particularly for reorganizing, has long been out of reach for most small businesses, especially after a "reform" 15 years ago gave creditors more power. So you could be forgiven for having missed it last summer when Congress streamlined the rules for small businesses hoping to use bankruptcy to make a fresh start. And not many people noticed when this law, the Small Business Reorganization Act, took effect just two months ago—perhaps because, as written, the new provisions applied only to businesses or proprietors with less than $2.7 million in debt.
But then, in late March, Congress temporarily upped this debt cap to $7.5 million as part of the $2 trillion coronavirus relief package. Now beleaguered companies and their lawyers are taking a second look and weighing whether to use bankruptcy court to reorganize.