©Maxim_Kazmin – stock.adobe.com Why Small Business Bankruptcy Could Lead a National Insolvency Wave
Small business bankruptcy filings are on the rise, but a legislative lapse means Chapter 11 is temporarily off the table for thousands of commercial debtors.
April 01, 2022 at 05:00 AM
10 minute read
Since 2020, uncertainty has plagued the commercial bankruptcy bar as government stimulus, low interest rates and lenient lenders sent Chapter 11 filings to historic lows. Simultaneously, subchapter V of the 2019 Small Business Reorganization Act (SBRA) benefitted attorneys by making Chapter 11 accessible to more debtors, including a substantial portion that were enabled to file for bankruptcy after the CARES Act temporarily tripled the debt limit for eligible small businesses.
Last week, Congress failed to pass pending legislation that would have written the CARES Act debt limit into the bankruptcy code, so the elevated limit of $7.5 million expired on Sunday. Now, small businesses can have no more than $2.7 million in qualifying debt to file for the cheaper, faster form of Chapter 11. For most businesses in between the debt limits, Chapter 11 is off the table.
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