Small Businesses Face Tougher Bankruptcy Proceedings as Government Program Expires

Small businesses in the United States are bracing for more challenging bankruptcy proceedings due to the expiration of a government relief program designed to simplify the process. The Small Business Reorganization Act (SBRA), which came into effect in February 2020, aimed to streamline bankruptcy filings for small businesses by reducing the costs and complexities involved. However, the key provisions of this act are set to expire, potentially leaving many small businesses in a precarious position.

The SBRA introduced Subchapter V, which allowed small businesses to reorganize their debts more efficiently, without the need for creditor committees and with more flexible repayment plans. This provision was particularly beneficial during the COVID-19 pandemic, providing a lifeline to businesses struggling to stay afloat. The streamlined process under Subchapter V significantly reduced legal and administrative costs, making it more accessible for small businesses to file for bankruptcy and reorganize their debts.

With the expiration of these provisions, small businesses may now face the traditional, more cumbersome bankruptcy process. This change is expected to increase the financial burden on businesses already dealing with economic challenges. Legal experts warn that the end of the SBRA’s key provisions could lead to a surge in liquidations, as businesses may find the traditional Chapter 11 process too costly and complex to navigate.

The expiration comes at a time when many small businesses are still recovering from the economic impacts of the pandemic. The potential increase in bankruptcy costs and procedural hurdles could hinder their ability to restructure and survive. Lawmakers and industry advocates are calling for an extension or permanent adoption of the SBRA’s provisions to continue supporting small businesses in financial distress.

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