Covid-19 Skews Payouts to Creditors of Bankrupt Small Businesses

The coronavirus is making it nearly impossible for bankrupt small businesses to predict their future income, adding a surprise wrinkle to a recently enacted law that aims to streamline small debtors’ reorganization.

Subchapter V of Chapter 11 created a new process under which a small business with less than $7.5 million in debt can restructure in bankruptcy. Under the law, debtors can pay off creditors over a three- to five-year period under a payment plan based on “projected disposable income.” That figure should have been a routine determination based on past business performance.

Then the pandemic hit.

Covid-19-fueled uncertainty has ...