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The Small Business Reorganization Act: How It Started. How it's Going. Where to Next?

By Jack O'Connor
February 01, 2021

The Small Business Reorganization Act of 2019 (SBRA), which took effect earlier this year, added a new Subchapter V to Chapter 11 of the Bankruptcy Code, intended to make Chapter 11 more affordable, efficient, and beneficial for small businesses (especially those whose owners might otherwise lose their equity in a traditional Chapter 11 case).

Just weeks after taking effect, the SBRA was amended by the CARES Act for one year, expanding Subchapter V eligibility to significantly more debtors by increasing the limitation on how much debt a business or individual may owe to creditors and still qualify as a "small business debtor," under the Bankruptcy Code.

In its first several months of life, early indications are that Subchapter V is gaining popularity. This article provides a brief overview of the SBRA and these first several months of its use — especially in light of the COVID-19 pandemic — concluding that in 2021, Congress should permanently adopt the CARES Act's expanded definition of a "small business debtor" as including businesses with up to $7.5 million in aggregate non-contingent liquidated debts.

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