President Donald J. Trump signed the “Small Business Reorganization Act of 2019” (SBRA; H.R. 3311) into law. The bipartisan legislation, which passed with the support of the American Bankruptcy Institute (ABI), passed the House in late July and the Senate on August 1. The law will take effect in February 2020.

“SBRA ensures that small businesses will be able to reorganize and rehabilitate their financial affairs effectively under the Bankruptcy Code,” said ABI Executive Director Samuel J. Gerdano. “ABI commends the Congress for developing this important and bipartisan bill.”

SBRA would add a new subchapter V to chapter 11, providing a better path for small businesses to successfully restructure, reduce liquidations, save jobs and increase recoveries to creditors while recognizing the value provided by the entrepreneur. It adopts the current definition of a “small business debtor” as a person in commercial or business activity with aggregate or noncontingent liquidated secured and unsecured debts as of its bankruptcy filing date of not more than $2,725,625. It is estimated that about half the chapter 11 cases filed today could qualify for subchapter V treatment.

Introduced on June 18 by Reps. Ben Cline (R-Va.), David Cicilline (D-R.I.), Doug Collins (R-Ga.) and Steve Cohen (D-Tenn.), the SBRA is inspired by the work of the National Bankruptcy Conference and ABI’s Commission to Study the Reform of Chapter 11. A bipartisan companion bill (S. 1091) was introduced on April 9 in the Senate by Sen. Charles Grassley (R-Iowa).

“With proper planning and execution, the Small Business Reorganization Act enables financially troubled small businesses to emerge from bankruptcy within months following a court-approved plan of reorganization,” Gerdano said.