REVISING THE DEBT LIMIT FOR “SMALL BUSINESS DEBTORS”: THE LEGISLATIVE HALF-MEASURE OF THE SMALL BUSINESS REORGANIZATION ACT

Authors

Michael C. Blackmon

First Page

339

Abstract

Bankruptcy law changed drastically in 2019 with the passage of several bills. This Note will examine two of them. First, the Family Farmer Relief Act of 2019 raised the debt limit of the family farmer from $4,411,400 to $10,000,000. This enables more financially distressed family farmers to be eligible for Chapter 12 relief, a reorganizational tool designed for farmers. Second, the Small Business Reorganization Act of 2019 created Subchapter V – Small Business Debtor Reorganization in Chapter 11. This new Subchapter streamlined the reorganization process for small business debtors by removing roadblocks which often derail a reorganization of a small business. However, the bill is a Congressional half-measure because it could have broadened the definition of small business debtor to include medium-sized businesses by raising the debt limit embedded in the Bankruptcy Code’s definition of small business debtor. Chapter 11 is notorious for being a poor fit for small to medium-sized businesses with many of these debtors choosing liquidation rather than reorganization. This Note argues that the debt limit for the small business debtor should be raised from $2,725,625 to $7,500,000. This increase would allow more small to medium-sized business debtors to fall under the protective graces of Subchapter V. This Note will use the Family Farmer Relief Act of 2019 as a concrete example for when debt limits should be raised and will examine the Congressional rationale behind doing so. Additionally, this Note will use the American Bankruptcy Institute and the National Bankruptcy Conference recommendations for fixing the definition of the small business debtor as guidance for modifying the debt limit.

Recommended Citation

Michael C. Blackmon, REVISING THE DEBT LIMIT FOR “SMALL BUSINESS DEBTORS”: THE LEGISLATIVE HALF-MEASURE OF THE SMALL BUSINESS REORGANIZATION ACT, 14 Brook. J. Corp. Fin. & Com. L. 339 (2020).
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol14/iss2/6