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Recent Amendments to the Bankruptcy Code: What You Need to Know

09.27.2019

On August 23, 2019, President Trump signed four new amendments into law, modifying several provisions of the Bankruptcy Code. These amendments aim to make bankruptcy less costly and more efficient. Below are some of the major changes to businesses.

Small businesses

The Small Business Reorganization Act of 2019 (SBRA) makes Chapter 11 bankruptcy more accessible and less expensive for small businesses by creating a new process for small business debtors (less than $2,725,625 in total debt) that is similar to the bankruptcy process under Chapter 12 for family farmers and Chapter 13 for individuals. The new process (subchapter V of Chapter 11 of the Bankruptcy Code) allows qualifying businesses to reorganize more quickly and with fewer administrative fees and costs. This provision goes into effect in February 2020.

Preference recipients

The SBRA made another change that is applicable to all bankruptcy chapters. Section 547(b) of the Bankruptcy Code, the preference statute, was revised to include a due diligence requirement. The trustee may seek to avoid preferential transfers only after considering a party’s “reasonably knowable affirmative defenses” to the avoidance action. Additionally, the venue provision was amended to require all preference lawsuits under $25,000 be held in the district where the recipient is located, not where the bankruptcy case is filed. These provisions will go into effect in February 2020.

Other changes to the Bankruptcy Code included the Honoring American Veterans in Extreme Need (HAVEN) Act of 2019, which excludes certain Veteran Administration and Department of Defense benefits from the calculation of monthly disposable income, which will enable more veterans to qualify for Chapter 7 bankruptcies. The Family Farmer Relief (FFR) Act of 2019 increases the debt limit used to determine whether a family farmer is eligible for relief under Chapter 12 (specifically designated for family farmers) from $4,411,400 to $10 million. 

For more information on our bankruptcy, restructuring and outsourcing services, please contact Bryan Graiff, Partner in Charge, Transaction Advisory and Litigation Support Services, at bgraiff@bswllc.com or Karen Stern, Partner in Charge, Entrepreneurial Services Group, at kstern@bswllc.com.

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