Reorganization under Chapter 11 of the bankruptcy code can be expensive, risky, time-consuming, and complex for small and mid-sized companies (see Practice Note, Bankruptcy: Overview of the Chapter 11 Process). A traditional Chapter 11 case may also not be a viable restructuring alternative for many smaller distressed companies because of:

One process under the Bankruptcy Code (established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) for reorganizing as a small-business debtor, allows the small-business debtor to proceed in Chapter 11 under slightly modified rules (see Practice Note, Small Business Chapter 11 Case: Overview). However, these small-business case requirements do not materially reduce the costs and burdens of Chapter 11 nor do they increase the likelihood that existing equity security holders can retain ownership of the small business under a Chapter 11 reorganization plan.

To address these issues, Congress enacted the Small Business Reorganization Act (SBRA), adding a new subchapter V to Chapter 11 of the Bankruptcy Code (Subchapter V). Subchapter V provides small businesses with aggregate liabilities of up to $7,500,000 (through June 21, 2024) with an opportunity to resolve outstanding liabilities in a streamlined, cost-effective Chapter 11 bankruptcy proceeding. Subchapter V is designed to foster successful restructurings of small businesses, saving jobs, and preserving enterprise value.

This Toolkit contains continuously maintained resources to help small businesses and individual small business debtors understand and navigate their ability to reorganize under Subchapter V.