A career in law is filled with firsts, and with helping clients navigate their way through the unfamiliar language and rituals of the law. Recent changes in the bankruptcy law benefit small businesses, and Van Horn Law Group filed the first small business Chapter 11 under the new rules of the Small Business Reorganization Act in the Southern District of Florida on February 26. Chapter 11 is the reorganization bankruptcy for business, but until very recently, it has been difficult for small businesses to access Chapter 11. Everyone knows about the big Chapter 11’s because they make the news*, but many small businesses have struggled to make this one-size-fits-all bankruptcy work for them.
Back in August, President Trump signed into law The Small Business Reorganization Act of 2019 to address issues facing small businesses by creating a new subchapter under Chapter 11 of the United States bankruptcy code. Let’s break down some of these changes.
Small businesses have theoretically ‘had access’ to the Chapter 11 system but struggled to make it work for them, simply because the provisions of Chapter 11 were designed for larger organizations. Small businesses tried to reorganize under a Chapter 13 bankruptcy, however these are personal bankruptcies and not intended for business operations. The changes under the Small Business Reorganization Act of 2019 were intended to bring small business owners under the full protection of Chapter 11, which they previously may not have been eligible to file. However, these changes to the bankruptcy code are not the only ones that have been put into effect.
The initial Bankruptcy Act of 1800 had no provisions at all allowing individuals to file for bankruptcy, no overarching bankruptcy code, and was friendlier to creditors than to debtors. The system was open to flagrant abuse and appealed three years later. At the time, the states had their own bankruptcy laws and systems, and continued with those until a financial panic in 1837 resulted in the Bankruptcy Act of 1841 which allowed for bankruptcy filings initiated by individual debtors. At the end of the Civil War, Congress had another crack at it and ended up creating the first bankruptcy judges, and then repealing the act once more. It was not until 1898 that Congress passed a comprehensive nationwide bankruptcy act that has been in place – though significantly amended – since then.
Bankruptcy is considered to be a constitutional right, and by improving access to small businesses, veterans, and family owned farming and fishing operations, more people can have the bankruptcy they need to reorganize and move forward. These modifications to the bankruptcy laws of the United States represent the most sweeping modifications since 2005, though notable changes to the code have been enacted in 1994, 1986, 1978, and 1938. There have been many tweaks in between these major reforms, but the overall timeline of changes is designed to make bankruptcy fairer, more equitable, and more attainable to those who need to exercise right to bankruptcy.
Van Horn Law Group’s founder, Chad Van Horn, has been working with bankruptcies and debt since 2009. Since then, we have built a thriving practice with offices in both Fort Lauderdale and West Palm Beach. We are experienced bankruptcy attorneys and able to handle all of your debt needs from student loans to getting debt collectors off your back, consolidation to bankruptcy. Get in touch with us by phone or email, or just walk into one of our offices Monday through Saturday. We’ll be happy to talk with you and give you your best legal advice with a free initial consultation. Don’t let debt run or ruin your life, or take away the small business that you have invested with your time, your money, and your heart.
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