SBA Silence Delays Small Business Bankruptcies, Raises Costs

Small business owners are experiencing delays in their bankruptcy proceedings and rising costs when government creditors fail to vote on their restructuring plans.

Government entities, like the Small Business Administration, that hold debt against a company often abstain from voting on those businesses’ restructuring plans under a section of bankruptcy law called Subchapter V—even if they don’t oppose the proposal. The practice can leave plans without necessary creditor support.

Companies are then frequently unable to access the immediate debt discharge they would otherwise secure in bankruptcy, lawyers say. Instead, they must accept the discharge “as soon as practicable” after completing ...