Does the business owner reorganize warranty obligations under subchapter V?

Your business can be saved

We have previously advised you that, if your small business needs to file bankruptcy in order to save it, Subchapter 5 of Arkansas laws on Chapter 11 of The Bankruptcy Code may be available.

This new subsection was implemented in February and provides a simplified and cheaper Chapter 11 reorganization process for small business debtors. Subchapter V appears to be very popular. According to the American Bankruptcy Institute (ABI), more than 600 filings have been made since February. Approximately 20 of these were in North Carolina.

Subchapter V covers natural and legal persons “carrying on commercial or commercial activities”. The debtor must be engaged in a commercial activity. Total debts, secured and unsecured, must not exceed $ 7,500,000.00 to qualify. These debts must be at least 50% from commercial activity.

Reorganization of bankrupt company

Small business owners have to guarantee loans, leases, or credit facilities. This presents a problem for the company’s reorganization. Each dollar the company saves from having to pay creditors under a reorganization plan will result in the owners being responsible for the debt. These creditors are usually able to pursue the owner’s debts outside of bankruptcy.

Subchapter V doesn’t allow companies and their guarantors together to reorganize the same case. However, subchapter VI can be used by individual owners to reorganize their personal debts. A Louisiana bankruptcy court recently ruled that subchapter VI was available to both business and business owners who have collateral obligations.

Andrew Blanchard and Christine Blanchard managed a Cajun trading enterprise that sold shrimp, picked quail eggs and raised hemp. They also rented properties and provided vending machines. They were able to guarantee business debts and they signed mortgages on rental properties. They filed for traditional Chapter 11 when their revenues began to fall like the southern Louisiana swampy coast. They filed for a traditional Chapter 11 in response to declining revenues. In April 2020, they changed their request to proceed under subchapter 5.

One creditor objected to the Blanchards using subchapter VI as individuals. He argued that subchapter VII could only be used if every entity for which they signed a guarantee had also filed for bankruptcy. The bankruptcy court denied this argument and permitted the Blanchards’ to proceed under subchapter VI. . The Blanchards qualified under subchapter V as small business debtors because they owed the most part of their debts to both operating and non-operating companies.

Filled for Chapter 7 bankruptcy

North Carolina has a case in which a company filed Chapter 7 bankruptcy to wind down the business. Then the owner’s surety filed a sub-chapter VI case. Another case involves a company that was reorganized under Chapter 11. Then, an owner surety filed their subchapter VI case. Were there any cases that were filed simultaneously by owner sureties as well as business owners? If so, how will the courts handle them? We expect many more Subchapter V cases due to the economic issues caused by the coronavirus and their popularity.


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