Standing Tall When It Matters Most

Bankruptcy for small businesses

When a Texas business has more debts than assets, the enterprise may be on shaky ground. A small business owner who does not file taxes as a sole proprietor would not have the option to file for Chapter 13, but Chapter 11 and Chapter 7 are options. The Small Business Reorganization Act (SBRA) might help small business owners to navigate bankruptcy better.

Bankruptcies for small businesses

The Small Business Reorganization Act (SBRA) refers to amendments to the federal Bankruptcy Code passed in 2019. The amendments intend to streamline a small business’s ability to file Chapter 7 or Chapter 11. With Chapter 7, the company would undergo liquidation bankruptcy. With Chapter 11, the small business remains open while paying an acceptable debt reorganization plan.

The amendments could make filing for Chapter 11 less costly for small businesses since the companies would not face the exact requirements of large corporations. Small businesses entering Chapter 11 would work with a trustee, adding further potential assistance.

Reorganization plans

The court does not impose a Chapter 11 repayment plan. Instead, the debtor submits a proposal, and the judge will rule on it. The court could accept the plan or request revisions. Problems may arise for small business owners who need help making their monthly payments. In such instances, it becomes necessary to inform the bankruptcy trustee. If the debtor misses payments, bankruptcy could face dismissal.

A significant benefit to business bankruptcy would be the cessation of collection actions. When a company owes money to creditors, the creditors have a legal right to recover past due amounts. They could turn the duties over to a collection agency, which may create additional stress for a small business struggling with financial obligations.

Creditors could have their say in bankruptcy proceedings. However, all final decisions rest with the court.