Can a Subchapter V Bankruptcy Restructure My Florida Business’s EIDL Loan Debt?
Small business owners across South Florida who are struggling to keep up with a large Economic Injury Disaster Loan (EIDL) often hear that Subchapter V of Chapter 11 is the answer, marketed at its creation as a faster, cheaper, and simpler alternative to a standard Chapter 11 case. In practice, many businesses that pursue Subchapter V find the process still involves real cost, real complexity, and real deadlines, so it is worth understanding what this process can and cannot do for EIDL debt before assuming it will be an easy fix. Our South Florida business bankruptcy lawyers can walk you through the realistic picture.
What Subchapter V Is Designed to Do
Subchapter V was created by the Small Business Reorganization Act to give smaller businesses a path through Chapter 11 with a compressed timeline, a subchapter V trustee who works with the debtor toward a plan, and, notably, the ability for business owners to often retain their equity in the company without paying unsecured creditors in full, something the standard absolute priority rule in traditional Chapter 11 cases generally does not allow.
Debt Limits Currently Apply
To use Subchapter V, a business must qualify as a small business debtor, which includes staying under a debt ceiling that is adjusted periodically. According to the U.S. Trustee Program, the current debt limit for Subchapter V eligibility is $3,424,000 in aggregate secured and unsecured debt, with at least half of that debt arising from commercial or business activity. Businesses carrying an EIDL loan along with other significant debt should confirm eligibility before assuming Subchapter V is available.
How EIDL Debt Fits Into a Subchapter V Plan
If your business qualifies, an EIDL loan can generally be restructured as part of a Subchapter V plan alongside other business debts, often stretched out over a repayment period of three to five years. However, if the SBA holds a secured lien on business collateral, that security interest still must be accounted for in the plan, much as it would be in a traditional Chapter 11 case. If an individual owner signed a personal guarantee on the EIDL loan, filing Subchapter V for the business alone generally does not discharge that personal guarantee. The guarantor’s personal exposure typically remains unless that individual also pursues their own bankruptcy relief.
Subchapter V Is Not Automatically the Cheaper or Simpler Path
Despite its original marketing, business owners should not assume Subchapter V will necessarily cost less or move more smoothly than they expect. Trustee fees, attorney’s fees, court filing requirements, and the need to produce a workable plan on a compressed timeline all add real cost and complexity, and outcomes vary considerably based on the specifics of each business’s finances and creditors.
Contact Our West Palm Beach Chapter 11 Attorneys to Discuss Restructuring Your Business’s EIDL Debt
Before assuming Subchapter V bankruptcy is the right, or the easy, answer for your struggling business and its EIDL loan, it is worth having an honest conversation with an attorney about eligibility, cost, and what actually happens to any personal guarantee. The West Palm Beach Chapter 11 bankruptcy attorneys at Kelley Kaplan Delaney & Eller, PLLC can review your business’s financial picture and help you determine whether Subchapter V, a traditional Chapter 11 filing, or another approach makes the most sense.
Source:
justice.gov/ust/subchapter-v
