The “Small Business Reorganization Act of 2019” (the “Act”) becomes effective for cases filed on and after February 19, 2020.
The Act applies to “small business debtors” as that term is defined in § 101(51D) of the Bankruptcy Code, which generally requires that the debtor have aggregate noncontingent liquidated secured and unsecured debts totaling less than $2,725,625.00 (subject to future dollar adjustments). The Act is largely designed to simplify the Chapter 11 process for smaller cases and may result in an uptick in filings by “Mom and Pop” businesses.
Three of the most significant changes contained in the Act are:
- A Chapter 11 trustee will be appointed in all cases. Currently, a Chapter 11 trustee is only appointed if ordered by the Court “for cause,” which usually requires a showing of gross incompetence, mismanagement, or fraud.
- No unsecured creditor committee will be appointed unless the Court determines there is “cause” for a committee. Currently, the United States Trustee attempts to form a committee in every case, though often no committee is appointed in smaller cases due to a lack of creditor interest.
- Debtors will now have the ability to strip liens and otherwise modify home mortgages in certain situations, which is currently prohibited unless the secured creditor consents.