Bankruptcy is a legal proceeding that offers debt relief and allows individuals and businesses to reorganize their debts and start afresh. Recently, the Small Business Reorganization Act of 2019 introduced a new bankruptcy option known as Subchapter 5 bankruptcy reorganization tailored to small businesses. Subchapter 5 bankruptcy offers debtors several advantages compared to other forms of bankruptcy. In this blog post, we explore what subchapter 5 bankruptcy reorganization is and the benefits it brings to Florida residents. 

1. Easier process – One major benefit of subchapter 5 bankruptcy is that it is a streamlined bankruptcy process, which is faster and less costly compared to other types of bankruptcy. The process is designed to make it easier for small businesses to navigate the process with the aid of an experienced bankruptcy attorney. The case takes less time to complete, meaning that the debtor spends less time or may avoid a protracted time in a Chapter 11 bankruptcy proceeding.

2. Retaining assets – Subchapter 5 bankruptcy reorganization is tailored to small businesses, allowing them to retain assets that would be liquidated in other bankruptcy types. Under this bankruptcy chapter, small companies remain operational during the bankruptcy process, and the owners keep possession of their property.

3. Cram down of secured debts - Subchapter 5 bankruptcy reorganization allows the debtor to reduce secured debts on certain types of collateral to their current value, extending the repayment period. This advantage can help small businesses save on expenses and improve their cash flow.

4. Affordable chapter 11 – For small businesses, Chapter 11 used to be the only option for reorganization when filing for bankruptcy. However, the process was too expensive and difficult for most small businesses to pursue, pushing them towards Chapter 7. However, subchapter 5 reorganization offers a more affordable chapter 11 alternative, fixing the shortcomings of traditional Chapter 11 bankruptcy by offering the benefit of being able to pay debts over time.

5. Higher debt limits – A major benefit of subchapter 5 bankruptcy reorganization is the increase in the allowable debt limit for small businesses. Under this bankruptcy chapter, small businesses with less than $7,500,000 in non-contingent liquidated and unliquidated debts can be eligible, even if their debts exceed the prescribed secured and unsecured debt thresholds of other bankruptcy types.

Subchapter 5 bankruptcy reorganization offers a tailored and more streamlined bankruptcy process for small businesses struggling with debt. The benefits of subchapter 5 bankruptcy reorganization for Florida residents include a more affordable option for reorganization, retaining assets that would otherwise be liquidated, a higher debt limit, and more. If you are a small business owner in Florida considering the best option when dealing with bankruptcy, consult an experienced bankruptcy attorney to learn how subchapter 5 bankruptcy can help restructure your business and get the fresh start that your business needs to navigate the bankruptcy process successfully.