MJBizMag July 2020 - 68

RECESSION ROAD MAP
BANKRUPTCY PRIMER
Four main types of bankruptcy are available to businesses and individuals
in the United States:
➤ Chapter 5: This is the newest option as of February. Chapter 5 bankruptcy
streamlines the reorganization process so it's less expensive for small businesses.
According to Michelle Novick, a partner with the Saul Ewing Arnstein & Lehr law firm in
Chicago, before the CARES Act legislation was passed in response to the coronavirus
pandemic, businesses had to have a debt load of $2,725,625 or less to be eligible to file
under Chapter 5 bankruptcy, but that has since changed.
" Because of the CARES act, the federal (government) increased that debt limit to
$7.5 million for the next year, " Novick said. However, many law practitioners have not yet
seen Chapter 5 in effect because states and the federal government enacted
stay-at-home orders.
" We're all going to see how that works and the benefits of it once everything gets back up
and running, but the advantage now is that more companies can use it because the debt
limit is so much higher, " Novick said.
➤ Chapter 7: Under this form of bankruptcy, companies go out of business and liquidate
their assets with the help of a court-appointed trustee. The trustee then distributes the
proceeds of the liquidation to creditors in accordance with the U.S. Bankruptcy Code.
➤ Chapter 11: As an alternative to liquidation, companies and sole proprietors can seek
bankruptcy protection through a restructuring of debt to keep their businesses operating
while paying creditors over time. A Chapter 11 filing for a corporation doesn't include
individuals' possessions, but a case involving a sole proprietorship includes both the
business' and the owner's personal assets.
➤ Chapter 13: This form of bankruptcy is structured for sole proprietorships or people
weighed down by personal debt. Any individual-including those who are self-employed
or operating an unincorporated business-is eligible for Chapter 13 relief, provided
unsecured debts are less than $394,725 and secured debts are under $1.18 million.
- Laura Drotleff
66 Marijuana Business Magazine | July 2020

MJBizMag July 2020

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