Rising Rate of Small Business Bankruptcies and Subchapter V
For quite some time, commentators have been suggesting that the rates of individual bankruptcy filings under Chapter 7 and Chapter 13 will increase as consumers return to making student loan payments and continue to contend with the effects of inflation. Yet in practice, business bankruptcies have been rising at a rate that is notable. According to a recent article in the Wall Street Journal, business bankruptcy filings — specifically those involving small businesses — have been on the rise in 2023 and continue to increase as we are now only a few months away from the new year. While certain issues like “increased interest rates, tighter lending standards, and higher operating costs” may be contributing to the increase in small business bankruptcy filings, the rise also may be due in part to the existence of Subchapter V bankruptcy.
What does your business need to know about the rising rate of small business bankruptcy filings, and what should your business know about Subchapter V specifically? An experienced West Palm Beach bankruptcy lawyer at our firm can tell you more.
Large Number of New Small Business Bankruptcy Filings Are Subchapter V Cases
One of the most important features to consider when assessing the rising rate of small business bankruptcy filings is the type of bankruptcy case that these business debtors are filing for. In short, many of the businesses filing for bankruptcy are filing for Subchapter V bankruptcy. The article cites new data from the American Bankruptcy Institute (ABI) that reveals nearly 1,500 businesses have filed for Subchapter V bankruptcy between January and September 2023. That number is a marked increase from the previous year, when approximately the same number of Subchapter V bankruptcies were filed over a 12-month period.
Data also shows that more small businesses are defaulting on loans, which may result in a further increase in small business bankruptcy filings under Subchapter V in the future. In some cases, data shows, small business owners rely on personal credit to fund business expenditures. Using personal credit cards or lines of credit to fund businesses can complicate business bankruptcy cases, depending upon the structure of the business and the type of bankruptcy the business is considering.
What is Subchapter V?
What is Subchapter V, and why has there been an increase in the number of bankruptcy filings under Subchapter V? First, Subchapter V has only been an option for business debtors for a few years, so it is quite new. It was created through the Small Business Reorganization Act (SBRA) in 2019, and it took effect in February 2020.
Subchapter V is a type of Chapter 11 bankruptcy designed specifically for small businesses that have a limited amount of debt — small businesses must owe a combined $7.5 million or less in order to file for Subchapter V bankruptcy. This new type of bankruptcy streamlines the process and makes a reorganization bankruptcy less expensive and less complicated for a small business. In other words, it makes it easier for small businesses to file for a reorganization bankruptcy and to restructure debts.
Contact Our West Palm Beach Bankruptcy Lawyers
If your business is considering a bankruptcy filing, it is essential to get in touch with an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller to discuss your situation. There are different types of bankruptcies that businesses can file for, and it will be important to determine the best type of bankruptcy for your business based on its circumstances and financial situation. Depending on the size of your business and the amount of debt it currently has, your business could also be eligible for the new streamlined Subchapter V bankruptcy. To determine your options, contact a lawyer at our firm today.
Sources:
wsj.com/business/entrepreneurship/small-busines-bankruptcy-surge-8989e665?mod=business_lead_story
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics
