Democrats and Republicans are now weighing an extension of subchapter V's $7.5 million debt limit before it is due to sunset back to the previous amount under the Code on March 27, Bloomberg News reported. Subchapter V elections lets small businesses move through bankruptcy much more quickly and cheaply than a traditional chapter 11. There are no official creditor committees to fight, just a government appointed trustee with limited powers who assesses the company’s finances and helps reach consensus with debtholders. More importantly, company owners don’t risk losing control of their companies to creditors, a common outcome in bankruptcies. The provision grew more important when the pandemic ravaged millions of small businesses, and the government raised the debt cutoff to qualify for subchapter V to $7.5 million, from $2.7 million as part of the CARES Act in 2020, and then extended it an additional year. Without another renewal, the higher limit will expire next month, boxing out thousands of companies that could benefit as they face new challenges like supply chain woes and higher interest rates. “It has enjoyed broad bipartisan support from Congress so far, and I’m hopeful that we can soon come to an agreement to permanently authorize a higher limit,” Iowa Republican Chuck Grassley, the ranking member of U.S. Senate’s judiciary committee, said in a statement. More than 2,800 cases have been filed since the program began, according to court statistics. That number is likely to rise this year as banks and landlords get more aggressive about collecting overdue loans and back rent, restructuring advisers say. “You have a mountain of debt that has not been addressed,” said Robert J. Keach of Bernstein Shur (Portland, Maine) and co-chair of ABI's Commission on the Reform of Chapter 11 that included higher eligibility limits for subchapter V in its Final Report. Government assistance and eviction moratoriums have allowed small businesses to exist in a temporary limbo that can’t last. “I think there will be two or three times as many Sub Vs this year.” Read more.
For more information on subchapter V, be sure to visit ABI’s SBRA Resources website.
