The law creates a Subchapter V of Chapter 11 bankruptcy protection, which essentially makes it easier for small business owners to retain ownership of their business in the event of seeking bankruptcy protection.Small businesses forced to file for bankruptcy protection due to financial stress brought on by the coronavirus pandemic may find some relief, thanks to recent changes in federal bankruptcy law.

Equity holders don’t get to keep their interest in the business if the unsecured are not getting paid in full,” she said.Leslie Berkoff, a partner with the law firm of Moritt Hock & Hamroff in Long Island, N.Y., told Zenger News that before the new law, Chapter 11 bankruptcy protection was too expensive for most small businesses.

Under the new law, businesses with less than $2.7 million in debt may file under Subchapter V of Chapter 11, which allows for “shorter deadlines for completing the bankruptcy process, allows for greater flexibility in negotiating restructuring plans with creditors and provides for a private trustee who will work with the small business debtor and its creditors to facilitate the development of a consensual plan of reorganization,” according to the U.S. Department of Justice’s U.S. Trustee Program.

To ease the financial burden on small businesses, Subchapter V removes some protections for creditors, including banks, credit card companies and other lenders.

In Subchapter V, the idea was, how do we get rid some of these hurdles and find a way to protect creditors so that it isn’t utilized to shove something down [the small business owner’s] throat?”

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