The Small Business Reorganization Act of 2019 (SBRA) became effective on the eve of the economic free fall stemming from the COVID-19 pandemic. Longleaf Law Partner’s bankruptcy law expert, Cindy G. Oliver, explains the new law in our 13-part series, Bankruptcy Buzz.
Part 11 of 13:
The absolute priority rule, which requires Chapter 11 debtors (or its equity owners) who wish to retain their equity interest to pay unsecured creditors in full, can be a frustrating hurdle for debtors and a source of great leverage for unsecured creditors. Subchapter V eliminates the absolute priority rule. Rather than paying unsecured creditors in full, a Subchapter V small business debtor needs to only commit all projected disposable income to the plan over at least three years. The amount of a debtor’s projected disposable income is likely to become a hotly contested issue in some contested cases.
The information provided in this article does not, and is not intended to, constitute legal advice. No action should be taken in any particular circumstance or fact situation with reliance upon the information contained in this article without obtaining the advice of an attorney.