For small businesses, bankruptcy change is big

enterprise. In contrast, anything above $20,000 for a small business could be cost-prohibitive.

Second, a Chapter 11 filing has to make sense to creditors, all of whom have to agree to a plan. Big companies are more likely to be able to liquidate assets or secure new funding in a bankruptcy, making the probability of success clearer to creditors.

Now there’s a better option for small businesses.

The Chapter 5 plan created by the Small Business Reorganization Act of 2019 went into effect this past February for businesses with less than $2,726,625 in debts.

The federal CARES Act, passed in late March and known for the PPP, raised the smallbusiness debt limit for one year to $7.5 million, opening the door to Chapter 5 as a tool for a larger group of small businesses during the COVID-19 pandemic. This is all brand-new.

The Department of Justice has assigned an initial cohort of about 200 trustees nationwide to administer this new type of bankruptcy.

San Antonio-based Michael Colvard, a bankruptcy specialist and partner at Martin and Drought PC, is one of two trustees in the city eligible to administer Chapter 5 cases as a trustee.

By mid-July, Colvard was assigned as trustee to his first seven cases. “One of my earliest cases has filed a plan, is moving forward, and I expect they are going to be able to pull themselves out (of their financial hole),” he said.

“It offers a unique advantage,” he said of the beefed-up Chapter 5, “and I see it as a potential upside opportunity to those types of businesses.”

Colvard explained why a small business would consider this new bankruptcy tool.

Chapter 5 allows a business owner a chance to pay on business debts for up to 60 months, based on realistic cash flow generated by the business, as