In In re Ellingsworth Residential Community Association, the U.S. Bankruptcy Court for the Middle District of Florida determined that a nonprofit community association engaged in the requisite “commercial or business activities” sufficient to qualify it as a “small business debtor” for purposes of filing a Chapter 11 petition under Subchapter V of the Bankruptcy Code. In so holding, the court determined that “any person who conducts a business or commercial enterprise is a small business debtor,” interpreting the eligibility for relief under this provision broadly. If other courts follow the rationale of the Ellingsworth court, we could soon be witness to a widespread application of Subchapter V of the Bankruptcy Code as the effects of the global COVID-19 pandemic ripple into the future.

Overview of Subchapter V

Subchapter V of the Bankruptcy Code, created under the Small Business Reorganization Act of 2019 (the SBRA), was enacted with the goal of making more attainable the benefits of the Bankruptcy Code for small businesses by streamlining what are otherwise often cumbersome and expensive Chapter 11 procedures. For example, proceedings under this subchapter do not require a debtor to file a disclosure statement, and many of the bankruptcy case milestones written into the code are subject to stricter timelines to drive the case more quickly and efficiently towards resolution.

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