Valuations have always been a crucial element in bankruptcies. A new niche subchapter of the Bankruptcy Code creates an easier and less expensive path for small businesses to reorganize and survive—a welcome lifeline during the pandemic. While the number of the new Subchapter V filings started off slowly, there has been a slow but steady increase in each month this year, according to Michael D. Pakter, a managing member at Gould & Pakter Associates LLC in Chicago. It’s safe to assume that many more cases will be filed, especially as Paycheck Protection Program funds are depleted.

The Small Business Reorganization Act (SBRA) was enacted in August 2019 and went into effect in February 2020. The SBRA adds Subchapter V to Chapter 11 of the Bankruptcy Act, which changes or eliminates some of the Chapter 11 requirements, making it more debtor-friendly. As enacted, Subchapter V put a cap of $2,725,625 on the amount of debt (noncontingent, secured, and unsecured debt) a business can have to qualify. But, on March 27, 2020, the CARES Act temporarily increased the cap to $7,500,000 for one year (or longer if Congress extends it), making many more businesses eligible for Subchapter V.

In the upcoming December issue of Business Valuation Update, Pakter explains what the new Subchapter V means to practitioners who do valuations for bankruptcies.