Georgia Bankruptcy Blog

Georgia Bankruptcy Blog

Small Business Reorganization After Covid-19 Pandemic: Better and Cheaper Options

In a recent article the New York Times, citing a poll, rather pessimistically stated that more than 40% of the small businesses in the country could close permanently in the next six months because of the coronavirus pandemic. Hopefully this not come to pass as the economy is opened up and we are able to control further outbreaks of Covid-19.  For small businesses that are able to struggle through and survive the pandemic, some relief may be available through the Small Business Reorganization Act of 2019  (also known as “Subchapter 5”) that became effective for cases filed in February 2020.  The cost of Chapter 11 has always been an impediment for small businesses seeking to reorganize.  Many of the same requirements for large commercial cases also applied to small businesses and Bankruptcy lawyers typically have to get an upfront retainer to protect them for the first few months of the case. This alone leads many businesses to continue struggling or close entirely.  The new procedures will probably save many small businesses needing to reorganize.

The first question is what “small businesses” qualify for the new procedures.  The primary qualification is the level of current debt.  Initially, the debt limit for Subchapter 5 was total debt (secured and unsecured) of $2,725,625.00 but it was raised to $7.5 million under the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act).  Although the initial limit was a significant amount,  consider a small business in metro Atlanta that may have an SBA Loan, a multi-year lease, equipment and inventory loans and other trade debt.  It would be relatively easy for even a “small” local business to exceed the initial limit.

There are several potential benefits for small businesses in the new Chapter 11, Subchapter 5, including:

  • A case trustee is appointed to monitor the case and, hopefully, assist the business and creditors in reaching a workable plan of reorganization and keeping the case on track.  Unlike in larger Chapter 11 proceedings the trustee does not take over the operations of the company.  In addition, there is no creditors committee. Although a committee may provide beneficial oversight in larger cases it is often an unnecessary burden in smaller cases and it can be very expensive.
  • A plan of reorganization must be filed within 90 days and the term must be between three and five years.  Recent cases indicate that the 90 day deadline can be extended for cause.  For example, an extension may be warranted as the pandemic continues and it is difficult for the business to forecast  income and expenses in the short term.  The business does not have to file a separate disclosure statement.  The new rules also make it easier to get the plan confirmed even with objecting creditors.
  • There are no United States Trustee fees.
  • The owners of the business can retain their ownership and, therefore, do not need to meet the “absolute priority rule.”
  • If the business makes all plan payments it receives a discharge of remaining debt.

With the favorable changes discussed above many small business should be able to survive through the pandemic and reorganize their debts.


Scott Riddle’s practice focuses on bankruptcy and reorganization. Scott has represented businesses and other parties in Chapter 11 cases for almost 30 years.  You can contact Scott at 404-815-0164 or  For more information, click here.  


Bankruptcy and Reorganization for Small Businesses After Covid-19.

If you own a small business you are most likely very concerned about making it through the next few months.  Unfortunately, one of the inevitable consequences of the ongoing Covid-19 crisis is the increase in business closings – temporarily or permanently.  We have already seen a long list of large, well-known businesses close permanently or file Chapter 11 Bankruptcy petitions.  That list will get longer every day.  We also expect to get a large number of small and mid-sized businesses who have to file for Chapter 11 in the coming months.  Landlords may start to lose patience over past-due rent, courts open back up for evictions, and other creditors generally lose patience as they face their own financial issues.

The New York Times recently published an article about the small business bankruptcies that are expected to be filed.   The article gave particular attention to the “Small Business Restructuring Act” that, very fortuitously, became effective in February of this year.  The intent of the new law, also known as “Subchapter 5 Bankruptcy,” is to reduce the normally high costs of reorganization proceedings for small businesses.  Initially, the debt limit for qualifying for the new Subchapter 5 was $2.72 million but Congress raised the debt limit to $7.5 million as part of the recent stimulus programs.  This new debt limit significantly increases the number of small business that will qualify for, and benefit from, Subchapter 5.

If you have a small or mid-size business facing financial difficulties there are a few steps you can take now to prepare for a possible reorganization.  The most important first step is to speak with a good business bankruptcy and reorganization lawyer in your area.  Most lawyers will be glad to speak with you and meet with you, when appropriate, at no initial cost.  It is important to make sure you speak with lawyers who have significant experience in business bankruptcy and reorganization cases rather than lawyers who my gravitate to the practice due to the crisis.  The lawyers who advertise “no money down” cases on television may do a fine job with personal bankruptcies, but they typically do not handle business cases.

One of the first questions a lawyer usually asks is for a brief summary of your current debts so it is often helpful to start gathering this information.  This includes the general amount and status of secured debt, such as bank or real estate loans, lease obligations, unsecured loans and credit card debt, and trade debt owed to key suppliers.  This is also a good time to note any business debts that have been personally guaranteed by the owner.

What you should not do is wait until a real emergency, such as an eviction suit, getting cut off by a key supplier or getting behind on employee wages and taxes.  Contacting a lawyer sooner than later is by no means a guarantee that a small business will survive but the chances are much greater by planning as well in advance as possible.


Scott Riddle’s practice focuses on bankruptcy and reorganization. Scott has represented businesses and other parties in Chapter 11 cases for almost 30 years.  You can contact Scott at 404-815-0164 or For more information, click here.  


Can Debtor’s Counsel Also Represent A Non-Filing Spouse (Or Other Party) In A Rule 2004 Examination? Maybe.

conflict of interestThis is an issue that comes up fairly often, although normally no objections are made for a Rule 2004 examination.  As long as the lawyer is not obstructive, it is usually not worth the additional time and expense of filing an objection.  In In re Craig, Ch. 7 Case No. 16-59582, 2017 WL 713572 (Bankr. N.D. Ga. February 21, 2017) (click here for .pdf), Judge Diehl addressed the issue of whether a debtor’s attorney can represent an non-filing spouse in a Rule 2004 exam.  The United States Trustee was the party moving for the examination in this case as part of their investigation into possible bad faith or whether an objection to discharge is appropriate.  The U.S. Trustee moved for disqualification of the debtor’s counsel after he informed them that he would be representing the debtor’s spouse at the examination, but before the examination took place.

The U.S. Trustee contends that Debtor and his non-filing spouse have divergent and conflicting interests relating to their marital property, and by representing both, [counsel] would be violating conflict of interest ethics rules, warranting disqualification. At the hearing, the U.S. Trustee provided numerous examples of potential conflicts that may arise but failed to allege any actual, current conflicts.

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N.D. Ga. – Judge Sacca Holds Interest Rate Paid Pursuant To 11 U.S.C. §726(a)(5) Is Federal Judgment Rate.

interest-rates-1It is the rare Chapter 7 case that ends up with sufficient estate assets to pay all claims in full, plus interest as required by 11 U.S.C. §726(a)(5).  The question addressed by Judge Sacca in In re Robinson, Ch. 7 Case No. 15-51556, 2017 WL 713571 (Bankr. N.D. Ga. February 22, 2017) (click here for .pdf) concerned the interest rate to be paid pursuant to this statute.

The issue before the Court is what does “interest at the legal rate” mean under Section 726(a)(5) of the Bankruptcy Code for purposes of a distribution on unsecured claims in a Chapter 7 case if the estate has sufficient assets to pay post-petition interest on those claims. Does the phrase mean interest at the federal judgment rate or does it mean the applicable nonbankruptcy rate on the unsecured claim that existed prepetition?

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11th Circuit Addresses Split Of Authority: Oral Statement Respecting Single Asset Falls Within Scope Of §523(a)(2)(A) Rather Than §523(a)(2)(A)

financial statementIn In re Appling (Appling v. Lamar, Archer & Cofrin, LLP), No. 16-11911, 2017 WL 603833 (11th Cir. February 15, 2017) (click here for .pdf), the Court addressed a question that has divided several other courts – Can a statement about a single asset be a “statement respecting the debtor’s … financial condition” for purposes of 11 U.S.C. §523(a)(2)?  In other words, if a debtor makes an oral material misrepresentation about a single asset (or liability?) that affects his overall financial condition, does it fall within the fraud exception of §523(a)(2)(A) or does it fall within the scope of §523(a)(2)(B), which requires that such statements be in writing in order to be excepted from discharge?  If the latter, arguably, it would allow dishonest debtors a “safe harbor” even after making significant material misrepresentations.

The debtor falsely stated to the creditor law firm that he expected a large tax refund of around $100,000 that he would use to pay the debt to the firm of approximately $61,000.  In reliance on this representation, the creditor continued its representation of the debtor and incurred more fees and expenses.  In fact, the tax refund was only about $60,000 and the debtor spent that money on his business rather than paying the creditor as he had promised.  After the creditor obtained a judgment against the debtor for ~$104,000, the debtor filed a Bankruptcy case.  The creditor filed an adversary proceeding to have the debt declared nondischargeable based upon the debtor’s fraud pursuant to §523(a)(2).  The Bankruptcy and District Courts held that the debt was excepted from discharge pursuant to §523(a)(2)(A).

The bankruptcy court ruled that because Appling made fraudulent statements on which Lamar justifiably relied, Appling’s debt to Lamar was nondischargeable, 11 U.S.C. § 523(a)(2)(A). The district court affirmed. The district court rejected Appling’s argument that his oral statements “respect[ed] … [his] financial condition,” 11 U.S.C. § 523(a)(2)(B), and should have been dischargeable. The district court ruled that “statements respecting the debtor’s financial condition involve the debtor’s net worth, overall financial health, or equation of assets and liabilities. A statement pertaining to a single asset is not a statement of financial condition.” The district court agreed with the bankruptcy court that Appling made material false statements with the intent to deceive on which Lamar justifiably relied.

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Judge Basier: Debtor May Redeem Real Property Sold At Tax Sale And Pay Redemption Amount Over Term Of Chapter 13 Plan.

tax saleIn In re Jimerson, Ch. 13 Case No. 16-60838, 2017 WL 393675 (Bankr. N.D. Ga. January 26, 2017 (Basier, J.) (click here for .pdf of opinion), the debtor’s property had been sold at a tax sale for non-payment of Fulton County property taxes.  The purchaser at the tax sale sent the appropriate Barment Notice providing that the debtor had until June 27, 2016 to redeem the property pursuant to O.C.G.A. §44-4-40. On June 20, 2016, Debtor filed a Chapter 13 case and a Chapter 13 plan, in which he proposed to redeem the property and pay the redemption amount (then $22,045.75) over the term of the plan.  The purchaser objected to confirmation of the plan.

The two (2) issues before the Court regarding the confirmation of the Plan both relate to the right of redemption that the Debtor seeks to exercise in his Plan. They are (1) whether the Debtor, having been transferred an interest in the Property after the tax sale and after the delivery of the Barment Notice, has a right of redemption under Georgia law and, if so, (2) whether the Debtor can pay the Redemption Amount over the term of his Plan.

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Fourth Circuit: Debtors Entitled To Full National And Local Standard Amount Of Expenses If They Incur An Expense In That Category.

MeansTest_BelowOur neighbors to the north recently had a key, debtor-friendly, decision in a Chapter 7 case regarding what expenses may be used in the means test calculations.  In In re Jackson, 2017 WL 59011, Ch. 7 No. 16-1358 (4th Cir., January 5, 2017) the debtors had used the entire amount allowed by the “National and Local Standards” for certain expenses even though their actual expenses for those categories were lower.  The Bankruptcy Administrator moved to dismiss.

We granted the appeal as to the following question: whether 11 U.S.C. § 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor incurs actual expenses that are less than the standard amounts.

In their means test calculations, the debtors included the full local standard amount of $1548.00 for their home loan payments, even though their actual monthly payment was only $878.00.  They also claimed the entire local standard amount for vehicles of $488.00 each, even though the actual payments for their two vehicles was $111.00 and $90.50, respectively.  In her Motion, the Bankruptcy Administrator argued that this was “abuse” and that the official forms were incorrect because they should state that debtors are “limited to” the National and Local Standards.  The debtors argued that the statute was unambiguous and allowed them to use the entire amount of the National and Local Standards even if their actual expenses for those categories was lower. Continue Reading

Can Non-Citizens, “Undocumented Workers,” and “Illegal Aliens” File For Bankruptcy In The United States?

ImmigrationQuite obviously, both immigration and the status of “undocumented” or “illegal” aliens currently in the United States is a hot topic now, and surely will be for a long time.   One issue that shows up in Bankruptcy Courts, albeit rarely, is whether non-citizens, whatever their official status, have access to Bankruptcy Courts in the United States.  The first place to start is Section 109 of the Bankruptcy Code (11 U.S.C. §109), aptly titled “Who May Be a Debtor.”  In short, there is no requirement in §109 that an individual be a citizen, or even lawfully in this country.  For obvious reasons, people who are in this country unlawfully are not likely to file Bankruptcy petitions.  However, it is not uncommon for green card holders to file for Bankruptcy protection.  As with any debtor in Bankruptcy, the person will have to provide the appropriate identification and meet all other requirements of the Bankruptcy Code.

However, another important issue has arisen in some cases – exemptions.  The availability of exemptions pursuant to 11 U.S.C. §522 is generally based on residency.  Courts in Florida have addressed this issue in cases involving non-citizens.  For example, in In re Fodor, 339 B.R. 519 (Bankr. M.D. Fla. 2006), the Court stated: Continue Reading

One Year Time Period For §727(e) Revocation Of Discharge Cannot Be Extended Or Equitably Tolled.

revokeIn In re Anzo, Ch. 7 Case No. 14-22766-jrs, 2017 WL 432787 (Bankr. N.D. Ga. January 30, 2017) (click here for .pdf of opinion), the debtor had been granted a discharge on September 29, 2015 and the case was closed on the same date.  Almost a year later, on September 27, 2016 (two days prior to the deadline to file a complaint to revoke discharge) a creditor filed a Motion to Extend Time to file a complaint to revoke the debtor’s discharge pursuant to 11 U.S.C. §727(e).  The creditor subsequently filed a Motion to Reopen the case two days later, on September 29, 2016.  As support for the two Motions, the creditor alleged “the possibility of fraud” in the related Chapter 11 case of a business in which the debtor was a member.  The creditor requested that the personal Chapter 7 case be reopened and he be given the opportunity to investigate whether there was fraudulent activity to support revocation of the debtor’s discharge.  Judge Sacca denied both Motions.

In the absence of binding authority in the Eleventh Circuit, Judge Sacca first addressed the issue of whether the deadlines of §727(e) could be equitably tolled, and compared this subsection with the statute of limitations found in 11 U.S.C. §546(a). Continue Reading