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Understanding the Small Business Reorganization Act

May 20, 2024

The Small Business Reorganization Act went into effect on February 19, 2020 and added a new subchapter V to Chapter 11 designed to make bankruptcy easier for small businesses.

The statute defines eligible small business as “entities with less than about $2.7 million in debts that also meet other criteria,” according to the U.S. Department of Justice, and the act: Be aware that entities that derive substantially all their income from operating a single real property are ineligible for Subchapter V. Also, Subchapter V does not repeal existing Chapter 11 provisions regarding small business debtors; instead, it creates an alternative procedure that small business debtors may elect to use.

Who Is Eligible for Subchapter 5?

In Florida, businesses that meet certain eligibility requirements may be eligible for Subchapter V.

To be eligible, the debtor must: If a small business meets these eligibility requirements, Subchapter 5 may be a viable option for debt relief and reorganization. However, it's important to consult with an attorney in Florida who can assess your individual situation and help you determine the best course of action.

  • Imposes shorter deadlines for completing the bankruptcy process.

  • Allows for greater flexibility in negotiating restructuring
    plans with creditors.

  • Provides for a private trustee who will work with the small
    business debtor and its creditors to facilitate the
    development of a consensual plan of reorganization.

  • Be a small business: To qualify, the business must have
    aggregate noncontingent liquidated secured and
    unsecured debts of no more than $7.5 million.

  • Be engaged in commercial or business activities: The
    business must be primarily engaged in commercial or
    business activities, and must not be a single asset real estate

  • Seek reorganization: The business must be seeking to
    reorganize its debts and continue operating.

  • Have a debtor in possession: The business is allowed to
    remain in possession and control of its assets and
    operations, which means it must have a debtor in
    possession to manage the bankruptcy proceedings.

  • Have a plan of reorganization: The business must propose a
    plan of reorganization that complies with the
    requirements of Subchapter.