For small business owners struggling with debt, Chapter 11 Subchapter 5 offers a faster, more cost-effective way to reorganize finances while maintaining business operations. At Kamini Fox, PLLC, we help businesses navigate this specialized bankruptcy option, ensuring they take full advantage of its benefits.
This guide explains how Subchapter 5 works, who qualifies, and why it’s an essential tool for small business recovery.
What Is Chapter 11 Subchapter 5?
A Simplified Approach to Business Reorganization
Subchapter 5 was introduced under the Small Business Reorganization Act (SBRA) of 2019 to streamline the traditional Chapter 11 process for small businesses. It reduces costs, speeds up court proceedings, and provides more flexibility in debt repayment.
Key Features of Subchapter 5
No Creditor Committee: Unlike traditional Chapter 11, no creditor committee is required, reducing legal expenses.
Faster Confirmation Process: Business owners can retain control while securing a repayment plan in months rather than years.
Eliminates Absolute Priority Rule: Owners can retain equity without requiring new capital contributions.
Who Qualifies for Chapter 11 Subchapter 5?
To file under Subchapter 5, businesses must:
Have total debts below $7.5 million (as of 2023).
Earn the majority of their income from commercial business activities.
Not be publicly traded companies.
How the Chapter 11 Subchapter 5 Process Works
Step 1: Filing for Bankruptcy
The business files a Chapter 11 petition and elects Subchapter 5 designation.
Step 2: Appointment of a Trustee
A Subchapter 5 trustee is assigned to oversee the case but does not take control of business operations.
Step 3: Submitting a Repayment Plan
The business must submit a reorganization plan within 90 days of filing.
Step 4: Court Approval & Implementation
Once approved, the business follows the repayment plan while continuing operations.
Benefits of Subchapter 5 Over Traditional Chapter 11
Pros
✔ Lower legal fees and court costs
✔ Faster debt restructuring process
✔ Business owners retain control
✔ No need for creditor approval to confirm a repayment plan
Cons
❌ Only available for businesses below the debt threshold
❌ Requires strict compliance with court-approved payment plans
❌ Limited to small business entities, not large corporations
Frequently Asked Questions
1. How does Subchapter 5 differ from standard Chapter 11?
It’s faster, cheaper, and eliminates creditor committees, making reorganization easier for small businesses.
2. Can I continue running my business during Subchapter 5 bankruptcy?
Yes! Business owners maintain full control while restructuring debt.
3. Do I need creditor approval for my repayment plan?
No. Unlike traditional Chapter 11, Subchapter 5 allows court approval without creditor consent.
4. How long does a Subchapter 5 case take?
Most cases are resolved within months, unlike traditional Chapter 11, which can take years.
5. How do I know if Subchapter 5 is right for my business?
Consult with Kamini Fox, PLLC to determine the best bankruptcy strategy for your situation.
Contact Kamini Fox, PLLC for Chapter 11 Subchapter 5 Guidance
If your small business is struggling with debt, Kamini Fox, PLLC can help you explore Chapter 11 Subchapter 5 as a solution. Contact us today for a free consultation at (516) 493-9920 or visit kfoxlaw.com.
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