bankruptcy court with gavelThis is the next post in a series of articles discussing small business bankruptcies in Olympia or Tacoma, Washington. The previous post reviewed how a business bankruptcy may impact an owner’s personal finances. When a business seeks relief from creditors through bankruptcy, it will not necessarily relieve an owner from personal obligations for such debt. Personal guarantees of business debt, for example, will not be discharged in the business bankruptcy. Owners are often forced to seek individual relief through personal bankruptcy as a result. In this post, we will discuss the Chapter 11 bankruptcy process for small businesses. If you need assistance, contact our office to speak with a lawyer.

The Chapter 11 reorganization process provides a lifeline for businesses that are unable to meet their debt obligations. It allows a company to restructure its debts while continuing operations. For many struggling businesses, Chapter 11 is the only way to keep a company alive. While it is available to businesses of all sizes, it can be very expensive, time-consuming, and can require significant internal and external resources to manage the process on the company’s behalf. Historically, these drawbacks have caused many small businesses to seek relief under other bankruptcy sections, such as Chapter 7, which results in the liquidation of assets and closure of the company. Recent changes to Chapter 11, however, establish a streamlined process specifically for small businesses, making the process more accessible.

The new provisions, known as “Subchapter V,” became effective in early 2020 as part of the Small Business Reorganization Act of 2019 and established a faster and less expensive Chapter 11 process for small businesses. Most businesses with debt less than $2,725,625[1] will be eligible to seek Chapter 11 protection from creditors under Subchapter V. The process differs from the traditional version in several ways. Notably, the timeline between filing a bankruptcy petition and being discharged is much shorter. After the petition is filed, a status conference will be held within 60 days and the debtor must file its plan of reorganization within 90 days. Under the Subchapter V process, creditors of the business will not participate in a creditors’ committee nor will they be required to approve the reorganization plan. These changes will likely result in significant savings of time and expense for the debtor. The court will appoint a trustee to help facilitate the development of a fair and equitable repayment plan, which restructures payments to creditors over a three to five year period. If the plan is consensual, meaning that it has been approved by the debtor’s creditors, then the debts will be discharged upon the court’s confirmation of the plan. If non-consensual, the debts will be discharged upon completion of payments required by  the plan. This means that a company may be able to develop and confirm a plan of reorganization in a matter of months rather than in years as typically happens in non-small business Chapter 11 cases.

When a business owner is faced with potential bankruptcy, their choices can impact not only themselves but their employees, creditors, and more. Ben Cushman understands the bankruptcy processes and can help you determine which approach is right for your small business. Ben has been representing Washington residents since 1996. His understanding of business law issues and the bankruptcy process will help ensure that your company’s interests are protected. Contact us today to speak with an Olympia attorney. The firm also services the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, and Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.

[1] Temporarily raised to $7,500,000 by the CARES Act.