Small Business Bankruptcy Bill Becomes Law

U.S. President Donald Trump has signed into law legislation that streamlines the bankruptcy process for small businesses and farmers.

According to reports in Lexology this week, Trump signed four bipartisan bankruptcy bills into law, including the Small Business Reorganization Act (SBRA), which aims to “simplify the process for small businesses to use bankruptcy as a means of reorganization.” Legislation defines a “small business debtor” as an SMB with liquid debts below about $2.7 million, and enables these SMBs to obtain a more flexible negotiation process when developing their reorganization plans.

The law will take effect on Feb. 19, 2020, reports said.

The legislation, which was first proposed late last year by Sen. Chuck Grassley (R-Iowa) and Sen. Sheldon Whitehouse (D-Rhode Island), included incentives for small business owners to retain ownership of their companies, as well as creditor protections. Small business owners are required to develop a repayment plan within 90 days of filing for bankruptcy, negating the need for them to appoint an unsecured creditors committee in an effort to reduce the financial burden.

The SBRA alters the previous legal requirements for small businesses to repay their debts in full in order to retain ownership of their companies.

“Small businesses haven’t been using bankruptcy as much as they could because it’s too expensive and too cumbersome,” said A. Tom Small, a retired North Carolina bankruptcy judge, in an interview with The Wall Street Journal last December. “Chapter 11 is designed for the big corporations, not the little ones.”

The passage of SBRA into law is not a surprise for many proponents of the legislation, including the American Bankruptcy Institute Commission, which testified in front of Congress earlier this year advocating for legislation changes to lift burdens on SMBs seeking bankruptcy relief. According to Lexology, less than 27 percent of the 18,000 small business bankruptcy cases filed between 2008 and 2015 resulted in reorganization.