SMALL BUSINESS REORGANIZATION: CHAPTER 13 OR SUBCHAPTER V OF CHAPTER 11

What options do a small business have when it has too much debt but wants to continue operating? It depends on the legal structure of the business, and the amount of unsecured debt that it has. If the business structure is a sole proprietorship and the unsecured debt does not exceed $465,275 while the secured debt does not exceed $1,395,875 as of April 1, 2022, debtor normally chooses Chapter 13 to reorganize the business by trimming down unsecured debt with a 3 to 5 year plan.

Chapter 13

For example, debtor operates a small import export business with $350K of unsecured debt consisting of credit lines from banks, credit cards and supplier credit, all of which are unsecured by any collateral, and business has been negatively impacted by the pandemic such that debtor can no longer pay the $350K on time, or just can’t pay it anymore, the Chapter 13 would allow him to pay a portion of the $350K over a period of 3 to 5 years. The plan would require that all of the debtor’s disposable income be paid into the plan for that duration of time. The business will be allowed to continue operating without any lawsuits or collection pressure from the unsecured creditors. If debtor completes all payments of the plan on a timely basis, then the unpaid portion of the unsecured debt is wiped out or discharged by the court. If the disposable income of debtor is $1K a month, a 5 year plan will pay about $50K of the $350K. If all plan payments are timely paid, then the court will discharge $300K at the end of the plan period.

Subchapter V of Chapter 11

What happens if the business structure is a corporation, or an LLC, or if the business in the above example owes $3M of unsecured debt? Then the business can file small business reorganization under subchapter V of Chapter 11 of the bankruptcy code.

Because of the pandemic, under the CARES Act, starting sometime in June of 2022 when President Biden signed it into law, for the next 2 years hence, small businesses with unsecured debt not exceeding $7.5M can reorganize under subchapter V of Chapter 11. This is a streamlined version of the normal Chapter 11 with a lot less hurdles to a successful reorganization.

Under this reorganization plan, small business do not have to deal with a creditors’ committee and can have a “fair and equitable” plan of reorganization confirmed without creditor consent much like a Chapter 13, and unlike a normal Chapter 11 where creditors’ consent to the plan must be obtained.

What is a “fair and equitable plan” under subchapter 5? It is a plan that pays all of the disposable income of the business into a 3 to 5 year plan. 

Disposable income is the amount of money left monthly after all of the business expenses for the month are paid. So, if the small business disposable income is $1K a month, the fair and equitable plan proposed will pay about $60K in 5 years. After completion of all plan payments required under the plan, the court will discharge or wipe out $2,950,000 of unsecured debt of the small business in this example.

Of course, many business people are tired of operating their businesses at a loss for the last 3 years because of the pandemic and are inclined now to throw in the towel. If this is the case, then Chapter 7 would be the right choice to liquidate the business. All creditors will be required to file their claims against the business, including all lawsuits, in the Chapter 7 case. A trustee will be assigned to liquidate the assets and distribute whatever assets are available to the creditors.

Small business cases may start out first as Chapter 13 or subchapter V of Chapter 11, then may subsequently get converted to Chapter 7 if reorganization fails.

PRAYING ALWAYS HELPS

It also helps to pray to our God, His beloved Son, Jesus Christ, and the Blessed Mother Mary for divine protection against the virus, and financial problems, because we have a God who loves us and His beloved Son, Jesus Christ, showers us with infinite mercy. All we have to do is humble ourselves and pray to the Sacred Heart of Jesus for a drop of his infinite mercy. Jesus has revealed in 1930’s to Saint Maria Faustina Kowalska of Poland that all sinners which we all are and those who do not believe in God and those who do not yet know Jesus, should all be brought to His sacred heart and be submerged in the ocean of His infinite mercy, for the sake of His Sorrowful Passion.

What is the current proof that God and Jesus are divine and all powerful? I refer you to exhibit A, the incorruptible body of Carlo Acutis!

CURRENT ONGOING PHYSICAL PROOF GOD IS ALMIGHTY 

INCORRUPTIBLE BODY OF CARLO ACUTIS DIED 2007 AT AGE OF 15

Look at the incorruptible body of the blessed Carlo Acutis who died at 15 in 2007. You can look at his body in Rome, Italy, now 14 years after his death. He looks like he’s just asleep in his jogging suit and rubber shoes!  That is a perfect example of an ongoing sign on earth that the God of Moses, our God, my God, is almighty and all-powerful that He even suspends the natural laws of biology and physics without any effort. He resurrected His one and only beloved son from death on the cross. Indeed, He has power over death.

I have actually thought, “What would the other religions believe if they actually saw the incorruptible body of the blessed Carlo Acutis? I think even Buddha, if he were alive today, would truly believe that Yahweh is the one True God.” No need to think about reincarnation and nirvana because his incorruptible body is available for all to see in Rome, Italy. We won’t need any kind of explanation on the efficacy of modern day mummification. Come on, man, that’s all bull. The truth is in plain sight. Believe your own eyes, that the one true God is all-powerful and His name is Yahweh, “I am who am.” He is the alpha and the omega, the beginning and the end.

Seven of my high school classmates passed away in 2021. They have all gone to meet their creator. I would like to mention their names here: Ricardo A, Victor Y, Jerry L, George C, Jimmy G, Edward N and Ricardo D. Three died of co-vid, one slipped and fell in the bathroom, one of heart attack, two of cancer. I pray all of them are in heaven with our Lord enjoying eternity with their loved ones as they must have all relied on the infinite mercy overflowing from the Sacred Heart of Jesus who died for us to redeem us, for the sake of his sorrowful passion.

Disclaimer: None of the foregoing is considered legal advise for anyone. There is absolutely no attorney client relationship established by reading this article.

“ETERNAL FATHER, WE OFFER YOU THE BODY, BLOOD, SOUL AND DIVINITY OF YOUR BELOVED SON, JESUS CHRIST, IN ATONEMENT FOR OUR SINS AND THOSE OF THE WHOLE WORLD, FOR THE SAKE OF HIS MOST SORROWFUL PASSION.”

Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation.  He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.