How Does the CARES Act Impact Small Businesses Considering Chapter 11 Bankruptcy?

The CARES Act temporarily amends the Small Business Reorganization Act (SBRA) to increase the debt threshold for small businesses from $2,725,625 to $7,500,000. This temporary eligibility increase sunsets after one year, after which the debt threshold returns to $2,725,625. The SBRA is intended to address many issues that make it difficult for small businesses to otherwise take advantage of the Chapter 11 process, including simplifying the Chapter 11 plan process, allowing small business debtors to retain equity under certain circumstances, shortening certain deadlines in the case, and eliminating committees of unsecured creditors in an effort to reduce costs. The SBRA itself is only a few months old, and given the lack of precedent interpreting the SBRA, courts may be flexible in fashioning equitable relief to small business debtors impacted by COVID-19.

For more information, contact your attorney or any attorney in the Bose McKinney & Evans Bankruptcy and Creditors’ Rights Group.