Veterans, Farmers, Small Businesses Impacted by Bankruptcy Reforms

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Veterans, Farmers, Small Businesses Impacted by Bankruptcy Reforms

Recently passed amendments to the United States Bankruptcy Code are designed to help make the bankruptcy process for three vulnerable groups of Americans more accessible, efficient, and affordable. While these three pieces of legislation did not alter the bankruptcy system in a substantial ways across the board, they will have significant impacts of three important groups of Americans – Small business owners, veterans, and family farmers.

Small Business Reorganization Act

The Small Business Reorganization Act of 2019 (SBRA) is the most extensive and impactful of the Bankruptcy Code reforms. Effective on February 20, 2020, SBRA makes bankruptcy more accessible and affordable for small businesses by establishing a similar process under Chapter 11 to the processes under Chapter 12 for farmers and Chapter 13 for individuals.

Small businesses or individuals that have accrued debts up to $2,725,625 may file bankruptcy under Chapter 11 of the Bankruptcy Code. A new subchapter V of Chapter 11 adds a requirement that not less than half of the debts must have come from the debtor’s business dealings.

Changes to the Chapter 11 procedures under the SBRA include:

  • An appointed trustee will be appointed to oversee the process and the distribution of the claims without actually running the business. Small business debtors will no longer need to pay quarterly fees to the U.S. Trustee.
  • In efforts to streamline the process, unsecured creditor committees will no longer be needed for small businesses filing for bankruptcy under Chapter 11, unless otherwise ordered by the court. The debtor will also not be required to file a disclosure statement.
  • Small business debtors no longer need to have a class of creditors approve a plan to have it confirmed. The court may approve a proposed plan to be “fair and equitable” over objections from the creditor.
  • Home mortgages can now be modified if the loan was primarily used in connection of an individual’s small business and not to purchase the residential property.
  • A key change make through the SBRA is abrogating the absolute priority rule, which required creditors to be paid in full before the debtor’s equity can retain its interest.  Small business owners will now be allowed to retain business ownership interests and propose a plan does not necessarily pay all creditors “in full.”

Honoring American Veterans in Extreme Need Act

The Honoring American Veterans in Extreme Need Act of 2019 (HAVEN) was enacted to help American military veterans shield disability and VA benefits from bankruptcy proceedings.

The HAVEN Act took effect on August 23, 2019 expands the bankruptcy exemption provisions for military veterans. The new legislation ensures that benefits earned by veterans are protected in the same way as Social Security benefits are protected.

The Family Farmer Relief Act

The Family Farmer Relief Act of 2019 provides relief for family farmers who qualify for relief under Chapter 12 of the U.S. Bankruptcy Code. The bankruptcy reform legislation increases debt relief limits for farmers from the previous cap of around $4.4 million to $10 million.

Many family farmers have been plagued in recent years with decreasing profits for a variety of reasons. The new legislation provides tools that allow farmers to restructure within their unique situations and challenges. The increase in the debt limits for family farmers will expand the scope of those eligible for Chapter 12 bankruptcy relief.

LegalInfo.com is Your Online Resource for Bankruptcy Cases

Are you a military veteran, family farmer, or owner of a small business that is impacted by one of these three new changes to the U.S. Bankruptcy Code? Contact the respected online source for legal information and resources at LegalInfo.com today. 

 

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