(FORTUNE Small Business) – Sad but true: These days bankruptcy attorneys like Jim Leshaw are busier than ever. That's because the economic slowdown has triggered a tightening of credit and a slowdown in business orders and consumer spending. Unprepared for such a turn of events, many cash-strapped small companies have been pushed to the brink (see following story, "How to Get Your Firm Off Life Support"). Bankruptcy filings were up 18% in the first quarter of 2001 over the previous quarter, according to the Administrative Office of the U.S. Courts. That's the highest quarter rise in history. Now Congress is mulling over the Bankruptcy Reform Bill of 2001, which is expected to be passed by year-end.

Leshaw, 37, a partner at international law firm Greenberg Traurig, is studying how the new bankruptcy regulations will affect his clients. He has spent the past 12 years helping businesses of all sizes reorganize under Chapter 11 bankruptcy protection and start anew. From his Miami office he gives FSB the skinny on the new law and advice on when entrepreneurs should consider this approach. Edited excerpts follow.

What is the purpose of the Bankruptcy Reform Bill of 2001?

The new regulations make it harder for individual debtors to write off credit card debt. But in some ways the laws simplify the process for small businesses that are filing for bankruptcy reorganization.

How so?

For companies set up as C corporations, S corporations, partnerships, and limited-liability companies, it makes the reorganization process easier. The government plans to create a standard form for small businesses seeking to reorganize under Chapter 11. That's a first. Up until now all company reorganization plans had to be negotiated with creditors and then approved by a judge in Bankruptcy Court. What was required varied from judge to judge. Creating a standard form will streamline the process. The new law also extends the amount of time that a small business debtor has to file a plan for reorganization from 120 days to 180 days.

What are the downsides of the new bankruptcy laws?

There are a few. First, sole proprietorships will continue to fall under the consumer provisions, which will make it more difficult to write off debt. Second, all business entities with multiple locations will have to make faster decisions about whether to close locations. Currently debtors can typically wait until their case closes to decide. Under the new law, debtors will have a maximum of 210 days to figure this out.

Will reporting requirements change?

Small firms will have to file profitability statements that disclose the amount of money they have earned or lost during the most recent fiscal year; cash receipts and disbursements during that particular period; and documents certifying that they have filed tax returns and paid all taxes.

In general, when should a small business owner consider reorganizing under Chapter 11?

Bankruptcy is not a tool that can turn a bad business into a good one. But it is a strategy that can help companies in a down cycle but have expectations of making a comeback. The whole process is cumbersome and can cost upwards of $20,000. And it's risky. Sometimes the court or creditors decide that a company is not fit to reorganize and will liquidate it under Chapter 7. My advice: Don't wait too long to speak to a pro who can assess your situation. The more you procrastinate, the harder it is to reorganize successfully.