HOW HAS COVID CHANGED CHAPTER 11 BANKRUPTCY LAW?
Small businesses, and companies in general, have been hurting since the first case of COVID-19 was detected in Arkansas on March 11, 2020. Although some have been able to ride out this pandemic, others may need to file for Chapter 11 bankruptcy. If you own one of the hundreds of small companies in Arkansas that is struggling to stay in the black, Chapter 11 may be a viable option.
The knowledgeable attorneys at Bond Law Office are available to discuss the process with you so that we can decide together whether Chapter 11 is right for you. Our law firm is located in Fayetteville, and we also represent clients in Fort Smith, Harrison, Eureka Springs, and the Arkansas River Valley.
Chapter 11 Bankruptcy in Arkansas
The term, “Chapter 11” is derived from the section of the United States Bankruptcy Code where it can be found. Often called reorganization bankruptcy, it is a method for businesses to address their debt through restructuring. With Chapter 11 a debtor is usually able to hold onto their assets. However, the business then operates under the court’s supervision to try to pay the company’s creditors.
A petition for Chapter 11 may be voluntary (filed by the debtor with the help of legal counsel), or it may be involuntary (filed by creditors that meet certain requirements). Unless the court orders otherwise, the debtor also must file several additional documents that detail assets, liabilities, income, expenditures, executory contracts, current leases, and statement of financial affairs. Generally, bankruptcy applicants are required to undergo credit counseling prior to applying for Chapter 11.
An Automatic Stay
An automatic stay of creditor action against the debtor automatically goes into effect once the bankruptcy petition is filed (some exceptions apply). This means that for a period of time, creditors must suspend all judgments, collection activities, foreclosures, and repossessions of property on any debt or claim that occurred before the filing of the bankruptcy petition. This gives the debtor the chance to negotiate and attempt to resolve their financial situation.
Small Business Cases
A small business case may be treated differently than that of a large corporation. To be considered a small business for purposes of Chapter 11, a company’s debts should not be more than $2,725,525.
Chapter 11 and the Small Business Reorganization Act
In August 2019 President Donald Trump signed the Small Business Reorganization Act (SBRA). The Act was added as a subchapter to Chapter 11 of the U.S. Bankruptcy Code. Unlike Chapter 11, SBRA specifies that only small businesses, and not creditors, may file. The Act requires owners of a business to submit a debt restructuring plan within 90 days of the date they file for Chapter 11.
SBRA and The CARES Act
A highlight of SBRA is that it increases the small business debt limit from $2,725,525 to $7.5 million for the next year under the CARES Act signed in February 2020.
This expansion will allow more Arkansas bankruptcies than ever to qualify as small business cases. Prior to SBRA, the $2 million-plus debt ceiling generally only qualified mom-and-pop companies as small business cases. Now, medium-sized organizations can apply for Chapter 11 in this category.
Contact Bond Law Office About Your COVID Chapter 11 Bankruptcy
If you have been experiencing difficulty with paying your creditors during the COVID outbreak, Bond Law Office can help you to find some relief. A Chapter 11 bankruptcy may provide the debt reorganization that can keep your business running.
Call our Fayetteville legal firm today. We are centrally located to assist clients in neighboring cities, including Fort Smith, Harrison, Eureka Springs, Clarksville, Waldron, Mena, Van Buren, and the Arkansas River Valley.