Small Business

ABI Applauds Introduction of Bipartisan Legislation Providing a Two-Year Extension to Maintain Greater Access to Bankruptcy for Struggling Small Businesses and Consumers

ABI APPLAUDS INTRODUCTION OF BIPARTISAN LEGISLATION PROVIDING A TWO-YEAR EXTENSION TO MAINTAIN GREATER ACCESS TO BANKRUPTCY FOR STRUGGLING SMALL BUSINESSES AND CONSUMERS

April 18, 2024, Alexandria, Va. — The American Bankruptcy Institute (ABI) supports the recently introduced S. 4150 by Sen. Richard Durbin (D-Ill.) to extend key provisions of the “Bankruptcy Threshold Adjustment and Technical Corrections Act” that were due to sunset on June 21 for an additional two years to 2026. S. 4150, cosponsored by Sens.  Lindsey Graham (R-S.C.), Sheldon Whitehouse (D-R.I.), Chuck Grassley (R-Iowa), Christopher Coons (D-Del.) and John Cornyn (R-Texas), would maintain the debt limit at $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11. The bipartisan measure also maintains the debt limit for individual chapter 13 filings to $2.75 million and removes the distinction between secured and unsecured debt for that calculation.

"We commend Sen. Durbin and the co-sponsors on the introduction of this important legislation and look forward to working with members of Congress to having it signed into law so that struggling small businesses and consumers continue to have greater access to bankruptcy and achieving a financial fresh start," said ABI President Soneet Kapila. “Maintaining the $7.5 million eligibility limit is consistent with the findings of ABI’s Subchapter V Task Force to help more small businesses keep their doors open, save jobs and benefit the overall economy.”

The Small Business Reorganization Act of 2019 (SBRA) went into effect on February 19, 2020, with a debt eligibility limit of $2,725,625 for struggling small businesses looking for a more economical and efficient way to reorganize their debts within chapter 11 of the Bankruptcy Code. In March 2020, the eligibility limit was expanded to $7.5 million through the CARES Act of 2020, and it received subsequent legislative extensions that are scheduled to sunset in June 2024.

ABI’s Subchapter V Task Force will be releasing its Final Report on April 19, which reveals that nearly 30% of all chapter 11 bankruptcy cases filed since the enactment of the SBRA have been subchapter V cases. Significantly, the Task Force found that more than 25% of these subchapter V debtors would have been ineligible for subchapter V relief under the lower cap.

Members of the press can attend a special briefing on the Final Report by members of the Task Force live tomorrow at 2:00 p.m. EDT on location at ABI’s Annual Spring Meeting by contacting ABI Public Affairs Officer John Hartgen at [email protected], or by clicking on the following link to attend remotely via Zoom.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.

The Fallout from a Credit Card Shake-Up

A long-running fight between the credit card giants Visa and Mastercard and retailers in the U.S. is nearing an end, with the promise of lower fees for merchants, The New York Times Dealbook reported. However the proposed class-action settlement could have wider consequences, including for the lucrative business of high-end credit cards — and for retailers. Visa and Mastercard said that they had agreed to reduce swipe fees, costs associated with the use of a credit card, for about five years. Lawyers for merchants who had brought the case estimate that this could save about $30 billion worth of fees. Perhaps more important, merchants will be able to raise their prices based on the kind of card. For example, buying groceries with a higher-fee card — typically a premium card like the Chase Sapphire Reserve — could become more expensive than paying with a lower-end one. Swipe fees, also known as interchange fees, are a big business; the Nilson Report estimates that Visa, Mastercard and card-issuing banks collected $72 billion last year alone. For card issuers, much of that money is then funneled into rewards associated with high-end cards, which entice consumers to spend more, racking up more fees for the banks (and, potentially, interest on unpaid balances). (Subscription required.)
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A Subchapter V Trustee in Possession Isn’t a Receiver, the Ninth Circuit Says

Affirming the BAP, the Ninth Circuit explains why a Subchapter V trustee in possession is not a receiver.
Court: 

Nonconsensual, Nondebtor Releases Prohibited by a District Court in a Subchapter V Case

A district judge in New York reversed a bankruptcy judge who had permitted a nonconsensual, nondebtor release in a Subchapter V case.

ABI's Subchapter V Task Force Provides Supplemental Input to Congress on Maintaining the Eligibility Standards for Small Businesses Looking to Reorganize under Subchapter V

Alexandria, Va. — The American Bankruptcy Institute’s (ABI) Subchapter V Task Force today transmitted a letter to key members of Congress providing further supplemental input regarding its “Preliminary Report of ABI’s Subchapter V Task Force on Maintaining the $7,500,000 Debt Cap for Subchapter V Eligibility” (“Preliminary Report”), released in December 2023.

“Since issuing its Preliminary Report, the Task Force was asked to consider whether, based on its recent in-depth study of Subchapter V cases, a change to address affiliate and insider debt for debtor eligibility is advisable,” ABI President Soneet Kapila of KapilaMukamal (Fort Lauderdale, Fla.) writes in the letter to Senate Judiciary Chairman Richard Durbin (D-Ill.); Ranking Member Sen. Lindsay Graham (R-S.C.); Rep. Thomas Massie (R-Ky.), chair of the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust; and Rep. Luis Correa (D-Calif.), the ranking member of the subcommittee.

The letter highlighted a few of Task Force’s findings to support the conclusion that no changes are needed to the eligibility standards for Subchapter V:

•           Requiring smaller businesses to include affiliate or insider debt in the Subchapter V eligibility standard would discourage smaller business owners, shareholders or related entities from extending loans or credit to the debtor business, which is a form of funding frequently relied upon by smaller businesses.

•           The Task Force did not receive or uncover any evidence that affiliate or insider debt was allowing larger or more complex businesses to file for Subchapter V bankruptcy or otherwise abuse the system.

•           The Task Force’s study demonstrates that Subchapter V is working as intended by Congress, helping smaller businesses reorganize their businesses and make payments to their creditors.

“Based on the foregoing, the Task Force strongly recommends no change to the eligibility standards under Subchapter V at this time,” Kapila writes.

The Task Force’s Preliminary Report found that nearly 30% of all chapter 11 bankruptcy cases filed since the enactment of the SBRA have been Subchapter V cases. Significantly, the Task Force found that more than 25% of these Subchapter V debtors would have been ineligible for Subchapter V relief under the lower debt cap.

The Task Force will be issuing its Final Report on April 19 at ABI’s 2024 Annual Spring Meeting in Washington, D.C. To access the Preliminary Report and find out more about the work of ABI’s Subchapter V Task Force, please visit https://subvtaskforce.abi.org/.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, financial advisors, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.

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