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New bankruptcy rules affect Chapter 11 filers

New bankruptcy laws will be taking effect this coming February that can affect small business owners who may want to take advantage of the bankruptcy protections available to them under Chapter 11.

Earlier this year, the Small Business Reorganization Act of 2019 was passed and signed into law. A new subchapter of the Bankruptcy Code has been added to Chapter 11 filings.

Any small business owners who need to file bankruptcy under Chapter 11 will have to conform to the new statutes, so it's important to learn how the changes can affect you, your creditors and lenders.

Under the terms of the Act, small business bankruptcies should be concluded more quickly and for less money. These provisions under the Act don't apply to indebted businesses with unsecured or secured debts that do not meet the $2,725,625 threshold.

Business debtors and others affected by the Act should know some of its provisions, including:

  • Appointing a trustee. Under the Act, the appointed trustee will facilitate the debt reorganization. Trustees also have the authority to monitor payments in compliance with the confirmed plan.
  • A streamlines reorganization process. Debtors are the sole parties who can propose the reorganization plans, which have to be submitted within 90 days of when the bankruptcy petition was filed. No longer is it necessary for the bankruptcy court to approve a separate disclosure statement.
  • No committees of unsecured creditors are mandated under the Act. However, a court may issue an order for one.
  • The Absolute Priority rule is eliminated. Debtors no longer are on the hook for paying unsecured creditors the full debt for the indebted business owner to be able to hold on to their equity.

These are just a few of the pertinent changes taking place in 2020. Your New Jersey bankruptcy law attorney can offer guidance and advice to small business owners contemplating filing for bankruptcy.

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