Chapter 11 Bankruptcy Subchapter V: A Lifeline for Small Businesses

When small business owners face mounting debt and shrinking cash flow, bankruptcy might seem like the only way out. But a traditional Chapter 11 case can be long, expensive, and full of red tape. Fortunately, there's a faster, more affordable option: Chapter 11 Bankruptcy Subchapter V.

Created under the Small Business Reorganization Act of 2019 (SBRA), Subchapter V was designed specifically to help small businesses reorganize their debts, stay in operation, and come out stronger on the other side.

What Is Chapter 11 Subchapter V?

Subchapter V is a special provision within Chapter 11 bankruptcy that streamlines the reorganization process for small businesses. It eliminates many of the obstacles that typically make Chapter 11 filings complex and costly, such as creditor committees and extensive disclosure requirements.

The goal of Subchapter V is to make Chapter 11 bankruptcy accessible to small business owners who want to restructure their debts without shutting down their operations.

Who Qualifies for Subchapter V?

To be eligible for Subchapter V under Chapter 11, the business must meet the following requirements:

• Total noncontingent, liquidated debt must not exceed $3,024,725 million (including both secured and unsecured debts).

• At least 50% of the debt must arise from business-related activities.

• The debtor can be an individual or business entity engaged in commercial operations.

Note: The debt limit was originally $7.5 million under the CARES Act, but was subsequently reduced to $3 million and may be subject to change in the future based on legislation.

Key Benefits of Chapter 11 Subchapter V

1. Faster Reorganization

Subchapter V cases move more quickly than traditional Chapter 11 cases. There are no creditor committees in most cases, and debtors must file a reorganization plan within 90 days of filing.

2. Lower Costs

Fewer procedural requirements and less litigation mean that Subchapter V is significantly more affordable for small businesses.

3. Debtor Remains in Control

The debtor typically remains in possession of the business and continues normal operations throughout the case.

4. No Absolute Priority Rule

Business owners can retain their interest in the company even if creditors are not paid in full—something not typically allowed in traditional Chapter 11.

5. Plan Approval Without Creditor Consent

As long as the court finds the plan to be fair, equitable, and feasible, it can be approved even without creditor agreement.

The Subchapter V Process at a Glance

1. File a Chapter 11 petition and elect Subchapter V treatment.

2. An automatic stay goes into effect, stopping collections and lawsuits.

3. A Subchapter V trustee is appointed to facilitate negotiations.

4. A reorganization plan must be filed within 90 days.

5. The court confirms the plan— with or without creditor approval.

6. The debtor makes payments under the plan and continues operating the business.

Is Chapter 11 Subchapter V Right for You?

If you’re a small business owner in financial distress, Subchapter V may offer the breathing room you need to restructure your debts and move forward. It’s especially valuable for entrepreneurs who want to maintain control of their business and avoid liquidation.

At Kamini Fox, PLLC, we specialize in helping small businesses navigate Chapter 11 Subchapter V. We’ll evaluate your eligibility, develop a strategic filing plan, and guide you through every step of the process.

Contact us today for a consultation to find out if Chapter 11 Subchapter V is the right solution for your business.