Bankruptcy Reorganization Act Opens Up New Opportunities for Small Businesses


In February 2020, Congress enacted the Small Business Reorganization Act of 2019, creating a new subchapter (Subchapter V) of Chapter 11 of the Bankruptcy Code. The new Act aims to make small business bankruptcies faster and less expensive – and therefore, more attainable – for small businesses in financial trouble.

Originally, the Act applied only to business debtors with secured and unsecured debts of less than $2.725 million, but in March, that number was increased to $7.5 million as part of the $2 trillion coronavirus relief package. With the increase, many more small businesses have begun to take a second look at whether to use bankruptcy court to reorganize.

Under Subchapter V, small business debtors now have a better chance of holding onto their companies than they would in a traditional Chapter 11 reorganization, as long as they distribute their disposable income to creditors over the next three to five years – no longer making it a requirement to pay unsecured creditors in full if they want to retain their equity interests.

Other notable provisions to the Act include:

  • Appointment of a Trustee to help facilitate reorganization and monitor payments to creditors
  • A streamlining of the reorganization process, which reduces the time and expense needed to confirm the debtor’s plan
  • Elimination of the New Value Rule, which no longer requires equity holders to provide “new value” to retain their interest in the debtor
  • Allowing debtors to modify their residential mortgages, as long as the underlying loan was not used to acquire the residence and was used primarily in connection with the small business of the debtor
  • Removal of the requirement to pay all administrative expense claims immediately
  • The granting of a discharge by the court to the debtor upon completion of all payments due within the first three to five years of the plan


While the benefits of Chapter 11 reorganization have been out of reach for many small businesses in the past, Subchapter V has changed that, making bankruptcy filing for businesses with less than $7.5 million in debt a more attractive option. If your small business is in trouble, Caroprese & Company can help. Contact us today, and one of our advisors will be in touch.



Caroprese & Company is a certified public accounting firm that provides innovative and strategic services to a diverse client base of individuals, families, small and medium size businesses, government entities, non-profits and multi-national corporations. Our dynamic professionals perform at a high intensity and are laser focused on providing excellence to our global clientele.



This publication is provided by Caroprese & Company as a service to its clients and colleagues.  The information and content included in this publication should not be construed as technical advice.  Questions regarding any matters discussed in this publication should be directed to Brandon Caroprese whose contact information is listed below:

Brandon Caroprese, CPA, MST
Tel. (973)-475-8090

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