A bill designed to lessen the time and cost in which it takes small businesses with less than $2.5 million in debt to file for bankruptcy is long overdue, advocates say.
“It’s logical and it’s exactly what’s needed,’’ said Robert Braverman, an attorney and adjunct professor at Rutgers School of Law in Camden, N.J.
Braverman, who is certified in both business bankruptcy law and consumer bankruptcy law, says the Small Business Reorganization Act of 2018 (S.3689, H.R. 7190), introduced as a bill in November, will encourage more small business owners to take advantage of bankruptcy.
“A lot of them are forced to close because they can’t afford the cost of filing,” Braverman said. He pointed out that the bill would eliminate the need to do a disclosure statement, a lengthy and costly document, and an official committee of unsecured creditors would not need to be appointed (as they are in Chapter 11 filings). Instead, a standing trustee would be appointed in every case. This, he said, is similar to what happens in Chapters 12 and 13 bankruptcy cases. He added that a simpler solution than the bill would be to allow small businesses to file under the Chapter 12 or 13 bankruptcy rules.
Braverman said the bill would eliminate the absolute rule in Chapter 11 where unsecured creditors must be satisfied in full before the debtor is allowed to retain any property under the plan. “You can pay what you can afford over a five-year period,” he said.
Bankruptcy protection filings for small businesses can cost as much as $300,000 or more, according to reports.
“It’s a well-balanced bill that streamlines the process for small businesses that need it and increases recovery for creditors where it is used,” said Edward Janger, a professor at Brooklyn Law School in Brooklyn, N.Y., in an interview with Bloomberg Law. Janger teaches and writes in the areas of bankruptcy law, commercial law, consumer credit and data privacy.
The bill’s sponsors include Sen. Chuck Grassley (R., Iowa), the departing chairman of the Senate Judiciary Committee, and Rep. Doug Collins (R., Ga.), who is expected to be the top Republican on the House Judiciary Committee in the next Congress.
They were joined by Sheldon Whitehouse (D., R.I.) and David Cicilline (D., R.I.), who serve on the Senate and House Judiciary Committees, respectively.
The bill is likely to be reintroduced with many of the same sponsors despite House and Senate leadership changes, said Samuel J. Gerdano, executive editor of the American Bankruptcy Institute in Alexandria, Va.