The current global COVID-19 pandemic has caused many small businesses to assess and struggle with their financial situation more than perhaps any time in decades. For many, despite attempts by the government to assist, bankruptcy is the most viable option. Many successful small business have been hit hard by the recent mandates for business closures in response to the pandemic.

Last year, the government signed into law the Small Business Reorganization Act (SBRA).  The SBRA, also known as Subchapter V (of Chapter 11 bankruptcy), adds timely information and options for those businesses who find themselves needing to file a corporate restructuring bankruptcy. Of the Subchapter V cases filed in 2020 thus far, over one quarter of those (133 of 506) were filed last month.

Subchapter V allows a debtor to spread its debt over 3 to 5 years, during which time the debtor must dedicate projected disposable income to paying creditors. Negotiation with creditors, lenders and landlords is aided by the impartial trustee who is automatically appointed and is essentially a facilitator to help the business come to a fair and reasonable agreement with its creditors. This may benefit both the debtor and the creditor as debts are recovered over time.  Under Subchapter V the debtor retains control of its assets and operations.

June 2020 saw 3,604 total new Chapter 11 bankruptcy filings, a 26% increase from last year.  Epiq Global, a legal services firm, which analyzed the data, has indicated that this type of surge in Chapter 11 filings has not occurred since the economic downturn of 2008.  The CARES Act stimulus programs have probably helped keep the surge even lower than it might have been otherwise.  But the increase in bankruptcies filed by both small and large businesses alike is expected to continue over the next several months, as things settle regarding the global pandemic.

It is important to note that those businesses currently subject to a bankruptcy proceeding are ineligible for the Paycheck Protection Program (PPP), thus Subchapter V filings will surely increase once PPP funds are no longer available.  If your business is unable to meet the loan forgiveness requirements or has been unable to secure PPP funds, bankruptcy may be the answer.

The decision to file Chapter 11 or Subchapter V may be hard, but once the decision is made, and with our firm’s help, filing bankruptcy is easy. At Davis Miles McGuire Gardner, your case is overseen by a certified bankruptcy specialist, certified by the State Bar of Arizona’s Board of Legal Specialization. There are only a handful of certified bankruptcy specialists in Arizona that help small business debtors file bankruptcy, and our experienced Flagstaff or Phoenix bankruptcy attorneys will make it easy for you.