By now, it’s clear that small businesses have born a great deal of the pandemic’s brunt, either directly or indirectly. Although extra funding and loans were made available to help companies stay afloat, some businesses couldn’t continue operating due to governmental restrictions. The following post outlines some key things to know about bankruptcy options as a small business owner through the rest of 2021.
The Sunset of the Subchapter V Debt Ceiling
The initial CARES Act of 2020 increased the small business debt ceiling to $7.5 million for non-continent liquidated secured and unsecured debt. As of March 26, 2021, that ceiling reverted to $2,725,625. Companies with more than $2,725,625 in debt cannot qualify for the expedited bankruptcy process and must instead go through the normal Chapter 11 process.
Consolidated Appropriations Act of 2021 (CAA) Considerations
Small business debtors can request a 60-day extension to resolve obligations related to a lease of non-residential property (such as paying rent) if the debtor has experienced hardship due to the pandemic. If necessary, the debtor may request a second 60-day extension, for a total of 120 days following the filing of the case to resolve rent payment issues. There are also extensions for resolving additional lease options (some require the bankruptcy court’s permission).
The CAA also created new rules for debtors and trustees looking to recover certain payments made to creditors within 90 days of a bankruptcy filing. A qualified bankruptcy attorney can help you understand which payments may qualify for these guidelines. In short, the Act encourages the parties to find a flexible payment arrangement that works for them.
Bankruptcy Options Due To COVID-19
Many small business owners find it simpler to close the business and file for Chapter 7 bankruptcy as individuals. If the company was profitable before the pandemic, it might be difficult to pass the required means test. However, if the amount of consumer debt is less than all other types of debt, the means test will not apply.
Above all, no small business owner should go through the bankruptcy process alone. It can be a tiresome and confusing process on top of everything else that has happened through the pandemic. Arkansas business owners trust Natural State Law to help guide them through the process. Call (501) 916-2878 today to learn more and schedule a free consultation.