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Mar 27 Attorney Articles, Recovery Resources

The Debt Limit in the Small Business Reorganization Act is Temporarily Increased to $7,500,000 by the CARES Act

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We previously wrote a short article to introduce small businesses and small business owners in San Diego (and around the country) to the Small Business Reorganization Act (“SBRA”) that went into effect on February 19, 2020. SBRA is another tool already in the tool box for small businesses and small business owners to use to overcome financial difficulties due to the COVID-19 pandemic and stay in business.

The CARES Act. We now write to provide an update regarding how SBRA will soon be amended by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which, as of today, passed both the United States Senate and the House of Representatives and is expected to be signed into law by the President on an immediate basis.

Temporarily Increased Debt Limit. As originally written, SBRA provides for a debt limit of $2,725,625 for a “small business debtor” (a small business and an individual) that/who is primarily engaged in commercial or business activity. That debt limit is temporarily increased by the CARES Act to $7,500,000 for Chapter 11 cases filed by small business debtors electing to proceed under SBRA but only for cases filed under SBRA during the one year period after the CARE Act goes into effect.

More Small Business Debtors Will Qualify Under SBRA. The temporary but substantial increase in the SBRA debt limit to $7,500,000 will allow many more small business debtors the opportunity to stay in business, retain employees and reorganize under SBRA while benefiting from SBRA’s streamlined procedures, 3 to 5 year repayment plan term and reduced cost structure.

Martin Eliopulos is a 29 year insolvency, business litigation and creditor rights and remedies attorney at Higgs Fletcher & Mack.  The insolvency team includes John Morrell, Paul Leeds, Maggie Schroedter, Kirsten Worley, and Meredith King.