The bankruptcy judges in Massachusetts adopted the second set of changes to bankruptcy procedure rules this year, effective April 27, 2020. The compete set of rule changes can be read here.
A bit of background: The creation of a new Small Business Reorganization Act in August, 2019 spurred a need for many small changes to the Federal Rules of Bankruptcy Procedure, before the SBRA took effect in February of 2020.
Because formal changes to the bankruptcy rules on a national level take a long time, the committee of lawyers writing the changes came up with a proposed list of temporary changes, and offered that to bankruptcy courts around the country to use as a stopgap measure.
Then along came the corona virus. The federal stimulus bill known as the CARES ACT was enacted in March, 2020. Among the stimulus measures were more tweaks to the bankruptcy code, and thus the need for changes to the new rule changes.
The most significant upshot to these changes upon changes is that for businesses looking to re-organize under Chapter 11 (i.e. looking to keep operations going while shedding some debt), there are now three separate paths to that goal:
* Traditional Chapter 11 taken straight. This is large business re-organization, or “big boy” Chapter 11. Think: expensive, formal, traditional, but possibly a powerful way to deal with creditors.
* Small business Chapter 11 under the old rules. The middle ground for small business. Still expensive, but a little more streamlined.
The new SBRA Chapter 11 for small businesses. Small means less than $7.5 million in total debt, for the time being. The SBRA borrows some of the concepts from the Chapter 13 and Chapter 12 cases that workers and family farmers have been using for years, and adapts them to the business re-organization system in a streamlined fashion.
by Doug Beaton
Attorney Douglas J. Beaton has practiced bankruptcy law in the Northeast for twenty-six years, and is an active commentator on developments in bankruptcy practice and procedure. He can be reached through this form: