Small businesses have been hit especially hard by the economic effects of the COVID-19 pandemic. While many businesses have found some relief thanks to the Paycheck Protection Program and other terms of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a large number of businesses are still struggling to make ends meet and fulfill their financial obligations. Small business owners in New York who are facing debt problems may benefit from pursuing a recent option known as Chapter 5 bankruptcy.
What Is Chapter 5 Bankruptcy?
The option commonly referred to as Chapter 5 bankruptcy is in actuality a modified version of Chapter 11 bankruptcy outlined in Subchapter V of Chapter 11 of the U.S. Bankruptcy Code. This option has been available since the 2019 passage of the Small Business Reorganization Act, and it was initially available only to businesses with less than $2,725,625 in debt. However, the CARES Act has expanded eligibility to businesses with up to $7.5 million in debt, at least through March 26, 2021.
Benefits Over a Regular Chapter 11 Bankruptcy
Like a typical Chapter 11 bankruptcy, a Chapter 5 bankruptcy allows the filer to retain the position of the business, reorganize debts, and create a repayment plan to reduce obligations over three to five years. However, there are some important differences in a Chapter 5 bankruptcy that offer benefits to small businesses. For example:
A trustee is appointed to serve in a consulting role and assist the business owner in the creation of a repayment plan and negotiations with creditors.
Chapter 5 bankruptcy usually does not involve a creditor committee, which reduces costs and gives the business owner more freedom to make decisions without requiring the approval of creditors.
The reorganization plan submitted by the business owner only requires the approval of the court, rather than the creditors. Unlike in a regular Chapter 11 bankruptcy, the business owner does not have to submit a disclosure statement, and creditors cannot submit their own reorganization plans.
If you are unsure whether bankruptcy is your best course of action, your attorney can advise you on all possible relief options. If bankruptcy is the right choice, your attorney can help you understand if your business qualifies for the Chapter 5 option and help you take the necessary steps to file and submit your reorganization plan.
Contact a Rockland County Business Bankruptcy Attorney
In this time of financial hardship for so many people across the country, the Law Offices of Robert S. Lewis, P.C. in New York is ready to help. We provide legal guidance and representation for individuals and small businesses who are seeking relief from debt. To schedule a free initial consultation, contact our knowledgeable Hudson Valley Area bankruptcy lawyer today at 845-358-7100.