12 Mar HOPE REMAINS FOR EXTENSION OF DEBT LIMITS FOR SUBCHAPTER V, CHAPTER 11 DEBTORS
By Mike Dal Lago
Dal Lago Law is tracking a recent bill in the US Senate that would keep in place a very important piece of legislation designed to help many potential Subchapter V, Chapter 11 debtors. Subchapter V modifies or eliminates many traditional chapter 11 requirements, making it easier for small businesses to confirm plans of reorganization and owners to retain their equity and control. The CARES Act temporarily allows companies with up to $7,500,000 (up from $2,725,625) in secured and unsecured non-contingent and liquidated debt to use Subchapter V to reorganize. This increase makes it possible for larger companies, with significant contingent and unliquidated debts that might otherwise reorganize under a traditional chapter 11, to qualify as a “small business debtor” and seek confirmation under the relaxed standards of Subchapter V.
Dal Lago Law is a very big proponent of Subchapter V bankruptcies and the way the process truly helps to reorganize debtors. (insert hyperlink for wall street journal article).
Unfortunately, the increase in debt limits is scheduled to sunset later this month, on March 27, 2021. What makes this even more damaging is that most practitioners still believe that the anticipated tsunami of bankruptcy is on the horizon. Thus, the underlying policy that motivated the increase in debt limits has not been met. But, help is on the way.
U.S. Senators Dick Durbin and Chuck Grassley have introduced the COVID-19 Bankruptcy Relief Extension Act. This important piece of legislation will temporarily extend the bankruptcy relief provisions enacted as part of the CARES Act, including the increased debt limit for Subchapter V cases.