Federal lawmakers are trying to strengthen the country’s safety net for struggling small businesses.
Two U.S. senators unveiled a proposal last week that could make the chapter 11 bankruptcy process cheaper and faster for companies that file for protection with about $2.5 million or less in debt, The Wall Street Journal reports.
Corporate bankruptcy experts told federal lawmakers earlier this year that small-business owners are avoiding the bankruptcy process because of the cost and the worry that they will be forced to sell their companies.
Filing for bankruptcy protection to save a small business often costs at least $100,000 to $300,000—and sometimes twice as much in cases where repayment disputes break out, lawyers say.
“Small businesses haven’t been using bankruptcy as much as they could because it’s too expensive and too cumbersome,” retired North Carolina bankruptcy judge A. Tom Small said Thursday. “Chapter 11 is designed for the big corporations, not the little ones.”
Companies that employ fewer than 500 people represent about 48% of the private workforce, according to a report released earlier this year by the U.S. Small Business Administration.