This is the latest in a series of Law in the Marketplace columns aimed to helping local business owners better understand their options as they relate to the COVID-19 pandemic.

Many owners of New Hampshire small businesses are currently facing crushing financial challenges – some because of longstanding issues, but many others because of the sudden horrific impact of the coronavirus pandemic.

Some of these owners may be able to negotiate voluntary compromises with their lenders, landlords and other creditors. But others may not. Sadly, to reorganize, these businesses may have to consider the use of Chapter 11 of the federal bankruptcy code.

As readers will know, the federal CARES Act provides numerous powerful aids to business owners to deal with the pandemic. One of these aids involves business bankruptcies. But before addressing the CARES Act impact on bankruptcy, I’ll make a few general comments about small business bankruptcies. In doing so, I’m deeply indebted to attorneys Joe Foster and Chris Dube, the two bankruptcy lawyers with McLane Middleton, P.A., the law firm to which I’m of counsel.

Chapter 11 of the Bankruptcy Code provides breathing room to financially burdened businesses by imposing an “automatic stay” that suspends creditors’ collection activity and litigation against these businesses while the debtor businesses reorganize their affairs.

On Feb. 19, a new subchapter to Chapter 11 of the federal bankruptcy code called the Small Business Reorganization Act (SBRA) become effective. SBRA is designed to give small businesses more control of the bankruptcy process by eliminating some of the many statutory hurdles that previously made financial reorganization difficult for small businesses.

For example, under SBRA:

– Only the small business debtor can propose a plan of reorganization in a bankruptcy proceeding; creditors may not.

– SBRA proceedings are structured to minimize legal and other expenses because in most cases a creditors’ committee will not be appointed and the plan process is designed to move towards confirmation more quickly.

– For example, in most cases, small business debtors will not be required to file disclosure statements with their plans under SBRA. Drafting these statements often requires substantial time and expense.

– In SBRA proceedings, the primary purpose of the bankruptcy trustee is to help small business debtors and their creditors avoid needless controversy and to help them reach a fair and equitable consensus.

– The broad intent of SBRA is to enable small business owners to retain ownership of their businesses, to earn a reasonable living from them, even while paying their net business income to their creditors. SBRA’s provisions can often enhance the likelihood that the plan proposed by a small business debtor will be approved by the bankruptcy court.

The CARES Act supports and expands the value of SBRA to financially troubled small businesses. It does so by greatly increasing the debt threshold for small business SBRA proceedings, namely from $2,725,625 to $7,500,000, almost a three-fold increase. Thanks to the CARES Act, SBRA proceedings are now available to millions of owners of small businesses, including many in New Hampshire, who may desperately need them but for whom they were previously beyond reach.

Should your small business declare bankruptcy under SBRA and the CARES Act? To find out, you need to call a bankruptcy expert.

John Cunningham is a Concord tax and businesses lawyer and estate planner. He has published Drafting Limited Liability Company Operating Agreements and Maximizing Pass-Through Deductions under Internal Revenue Code Section 199A. Both are the leading books in their fields. If you have business or tax questions you’d like addressed in this column, call John at (603) 856-7172 or e-mail him at lawjmc@comcast.net