Bankruptcy is a last resort for many people. Still, it may be the right option for you if you are struggling with significant amounts of debt that you are unable to repay. The bankruptcy process can become complex and the laws are always changing. It is for these reasons that it is always so important to work with a Florida bankruptcy lawyer when filing any type of bankruptcy. Recently, there have been more changes to the bankruptcy laws on both the federal and state level. Below, one of our experienced bankruptcy attorneys explains these changes in detail.
New Bankruptcy Laws in Florida
On April 26, 2024, Governor Ron DeSantis signed SB 158 into law. The law significantly increases the value of the motor vehicle exemption in bankruptcy cases, providing critical relief to thousands of families in Florida. The new bankruptcy law in the state increases the motor vehicle exemption to $5,000, which is much higher than the $1,000 exemption that was previously available. Before the new law was signed, Florida had one of the lowest motor vehicle exemptions in the country.
The property exemptions in bankruptcy mainly apply to Chapter 7 bankruptcy. This type of bankruptcy is also known as a ‘liquidation bankruptcy’ because the trustee liquidates, or sells, some of a borrower’s property to repay some of their debt. The exemptions available in Chapter 7 protect certain types of property from being sold. For example, in Florida borrowers can protect 100 percent of the equity in their home.
The new law means much more than just allowing people to keep their vehicles, though. Before the new law, many borrowers lost their vehicles during the Chapter 7 bankruptcy process. This perpetuated the downward spiral that so many borrowers with significant debt face. After losing a vehicle, many people find it difficult to get to work, continuing the financial distress and insecurity borrowers often feel.
It took two years for SB 158 to be passed but now that it has been, it will provide significant relief to bankruptcy filers. The law went into effect on July 1, 2024, meaning that borrowers can currently enjoy the added protection.
New Federal Bankruptcy Laws
While the state’s changes to bankruptcy law will benefit many borrowers, the changes on the federal level may hurt small businesses. In June of 2024, a program that increased eligibility for small businesses that wanted to file bankruptcy expired. For small and medium-sized businesses, this change means they can no longer use Subchapter V to file, leaving them with only the more costly and complex Chapter 11.
In 2019, the Small Business Reorganization Act was passed by Congress. The Act added Subchapter V to the U.S. Bankruptcy Code, which allowed small businesses to eliminate some of their debts without putting ownership of the company at risk. Subchapter V also allowed small business owners to avoid the procedural oversight mechanisms that often result in delays and additional costs during the Chapter 11 bankruptcy process.
Initially, the debt threshold for small businesses was $2.7 million, which was then adjusted to $3 million due to inflation. Just as the pandemic hit in March of 2020, the law was changed to increase the threshold to $7.5 million. That threshold was extended in 2022, but it was not renewed on June 21 of 2024, meaning that the lower threshold of $3 million once again applies to small businesses.
How Will the New Bankruptcy Law Impact Small Businesses?
Under the increased threshold, more businesses in Florida applied than in any other state in the country. Since the beginning of the program in 2020 through May of 2024, 1,067 businesses participated. Each year, the number of businesses that participated also increased. The number of participating businesses peaked in 2023 and in 2024, approximately 444 businesses were using the program. That nearly doubles the amount of participating businesses in 2022. Nearly one-third of the cases were in South Florida.
Throughout the Sunshine State, roofing companies, dry cleaners, pizzerias, and asphalt paving companies have benefited from the higher threshold. Companies such as Mojito Club Sawgrass in Fort Lauderdale sought Subchapter V protection in 2024 alone. On a national level, many small businesses sought protection under Subchapter V. In 2023, the number of filings was almost half of all Chapter 11 cases filed.
The Subchapter V option was praised by bankruptcy advocates during its entire duration. The program was known to have many benefits for small businesses, including the fact that it was more efficient and provided relief to a greater number of companies.
How Does Subchapter V Differ from Chapter 11?
During a Chapter 11 bankruptcy, a bankruptcy trustee takes over control of the business throughout the process. When a small business chooses Chapter 11, this is very detrimental to the company. Under Subchapter V, however, the bankruptcy trustee speaks to everyone, forms an opinion, and tries to negotiate an agreement that works for everyone. It has been said that the higher threshold under Subchapter V not only benefits small businesses but that it also saves many jobs.
Now that Congress has not extended the program, Subchapter V is still available to small businesses, but the threshold has been changed to the lower $3 million it was once previously. The American Bankruptcy Institute had created a task force that spent one-year analyzing cases and asking bankruptcy trustees, judges, and academics for their input. The Institute then recommended a higher limit, finding that more than one-quarter of firms were above the $3 million threshold.
Contact Our Bankruptcy Attorneys for Help Filing Bankruptcy in Florida
On its own, the bankruptcy process is complex. Making it even harder for people who are unfamiliar with it, the laws are also always changing. At Loan Lawyers, our Fort Lauderdale bankruptcy lawyers can help you determine which option is right for you, and guide you through the process so you have the best chance of a successful outcome. Call us today at (954) 523-4357 or contact us online to schedule a free consultation and to get the legal help you need.
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Loan Lawyers is made up of experienced consumer rights attorneys who use every available resource to develop comprehensive debt solution strategies. Our goal is to take on those burdens, resolve those problems, and allow our clients to sleep soundly knowing they are on the path to a better future.
