Nevada Businesses Are Struggling. Can This New Bankruptcy Law Help?

The new Small Business Reorganization Act could help small businesses that are financially struggling due to the COVID-19 pandemic. Referred to as Subchapter 5, this new bankruptcy option could mean the difference between a business surviving or having to liquidate.

How to Qualify for Subchapter 5

Subchapter 5 is designed specifically for small businesses and eases the burdens of time, cost, and other obstacles that Chapter 11 debtors encounter. Prior to the COVID-19 pandemic, the SBRA debt limit was set at $2,725,625. It has since been raised to $7,500,000 under the CARES Act to allow more businesses to restructure or eliminate their debt during this unexpected economic downturn.

To file Subchapter 5, the business must provide its most recent financial documents, including a balance sheet, cash flow statement, statement of operations, and federal income tax return. If a necessary document does not exist, a sworn statement must be provided to that effect. The process is streamlined, so much of the detailed work needs to be completed between the debtor and the bankruptcy attorney before submitting the plan for approval.

Benefits of Subchapter 5

Some of the benefits of filing a Subchapter 5 bankruptcy include:

• An expedited case schedule that includes an early status conference and a 90-day deadline for submitting a repayment plan
• Owners can retain interests in their businesses
• An unsecured creditors committee is not required
• The plan will typically be approved provided that all the debtor’s disposable income is used for plan payments for three to five years
• When required payments are completed, the debtor receives a discharge of the remaining debt

Meeting an Unforeseen Need

The SBRA went into effect on February 19, 2020, at a time when the catastrophic impact of the COVID-19 pandemic to the local, state, and national economies was unforeseen. This law may be what small businesses need to survive the worst economic crisis since the Great Depression.

More than seven months into the COVID-19 pandemic, businesses large and small, are struggling. Small businesses in Nevada have been especially hard hit. The Nevada Small Business Development Center estimates that nearly half of affected businesses may be out of business within six months because they will run out of cash. Filing for Chapter 11 bankruptcy requires money and resources that many of these businesses do not have.