Subchapter V of Chapter 11, created by the Small Business Reorganization Act of 2019 (SBRA), gives small businesses a faster and less expensive path to reorganize under the Bankruptcy Code than a traditional Chapter 11 case. For many small and mid-sized businesses, Subchapter V is the difference between a realistic restructuring and a shutdown. In this post, we explore the main differences between Subchapter V and a traditional Chapter 11, who qualifies, what the process looks like, and why an experienced bankruptcy attorney matters.
How does Subchapter V differ from Chapter 11?
Subchapter V was created for small businesses to find a middle ground between Chapter 7 and Chapter 11 bankruptcies after complaints of the process being too complex and costly. In short, it lowers the cost of bankruptcy for small businesses and streamlines the process. Subchapter V removes the creditor’s committee, decreases Trustee fees, and also eases or eliminates some of the time-consuming administrative rules from Chapter 11, including the “absolute priority rule” which governs the order of payment among creditors and shareholders.
A Trustee will be appointed under a Subchapter V and the debtor will stay in control of the business operations while reorganizing. In this situation, the role of the Trustee is similar to a Chapter 12 bankruptcy vs. a Chapter 7 or 11. They act as an advisor and will oversee some of the high-level processes to ensure the debtor is sticking to the plan.
Is my client or business eligible?
To qualify for Subchapter V, a debtor must be engaged in commercial or business activity and have aggregate noncontingent, liquidated secured and unsecured debts of $3,424,000 or less as of the petition date (not counting debts owed to affiliates or insiders). This current figure reflects the adjustment under 11 U.S.C. § 104(a) effective April 1, 2025. The cap was temporarily raised to $7.5 million under the CARES Act and later extended, but that temporary increase expired on June 21, 2024, and the threshold returned to the inflation-adjusted baseline.
What are the filing requirements?
A Subchapter V debtor has 90 days to file the reorganization plan (compared to the 180 days in Chapter 11). An extension of the 90-day deadline may be available if circumstances beyond the debtor’s control justify the delay. In addition to the bankruptcy petition, the debtor must file a balance sheet, statement of operations, cash flow statements, and federal tax returns.
Also, unlike in Chapter 11 bankruptcy, the SBRA states that only the debtor will file a plan and they do not have to file a disclosure statement. Instead, the plan must include a history of business operations, a liquidation analysis, and confirmation that the debtor can meet the proposed payment plan. By removing a disclosure statement and potential competing plans from creditors, the reorganization process can happen quickly without increased costs.
What is the timeline?
One of the key differentiators in a Subchapter V bankruptcy filing is the speed of the process. With a 90 day turnaround, the debtor is required to present a detailed plan in a short amount of time. It’s essential that you seek counsel as soon as you experience financial difficulty, to hit the mark and get consent on the reorganization plan from the court. They will be looking for one of two things: 1. the debtor will be able to make all payments or 2. the debtor is reasonably likely to be able to make all payments and the plan outlines a suitable alternative to protect creditors if payments are not met. A plan is likely to be confirmed under the terms that all projected disposable income for three to five years will be used to make payments.
In this fast-pass “emergency bankruptcy” timeline, all major decisions have to be strategic and effective in order to reach the confirmation requirements, which can be achieved with the help of an experienced attorney.
Do I specifically need a bankruptcy attorney?
Yes. Business debtors must retain counsel to appear in litigation or in bankruptcy matters. It’s important that you seek counsel from an experienced bankruptcy attorney, early during this vulnerable time. We are seeing a number of general practitioners jump into the bankruptcy sphere in tandem with the economic outlook. Given the efficiency and detail required to successfully file for a Subchapter V, it’s in your best interest to invest in a competent attorney with years of experience in this sector. There are a number of moving parts that you need to be aware of from day one and a skilled attorney will help you meet the requirements.
Subchapter V lowers costs and streamlines the reorganization process so small businesses can actually afford to restructure under the Bankruptcy Code. Get in touch with us to enable your small businesses to survive bankruptcy, reorganize assets, and retain control of your operations throughout your path to confirmation in the bankruptcy process.