Can My Business Reduce Its Debt to Qualify for Subchapter V?
If your South Florida business is struggling financially, you may be considering a reorganization bankruptcy. Reorganization bankruptcies allow businesses to remain open during a bankruptcy case and to restructure debt so that they can catch up on debt owed to creditors over time. There are different types of reorganization bankruptcies that businesses can file, although a traditional Chapter 11 case is often the most common. In addition to a traditional Chapter 11 filing, some small businesses are eligible for a Subchapter V filing, which is a subchapter of Chapter 11. However, as you may know, there is a stringent debt limit for Subchapter V cases. If you want your business to be able to file for Subchapter V bankruptcy, you may be wondering: can my business reduce its debt to qualify for Subchapter V?
This is a question that many smaller businesses have considered after the pandemic-era increased debt limits for Subchapter V sunsetted in June 2024. Our West Palm Beach bankruptcy lawyers can tell you more.
Understanding the Subchapter V Debt Limit
During the COVID-19 pandemic, the debt ceiling or threshold for a Subchapter V case was increased to $7.5 million in combined secured and unsecured debt. However, that pandemic-related increase ended in June 2024, resulting in the debt limit reverting to a combined $3,024,725.
That lower debt limit remains in effect even though there has been some Congressional discussion about increasing the Subchapter V debt ceiling. What that means is that a small business that otherwise meets the Subchapter V requirements must also have debt below the stated debt threshold.
Are There Options for a Business to Reduce Debt?
If your business is relatively close to the Subchapter V threshold but is over, are there ways for your business to reduce its total debt in order to qualify for Subchapter V bankruptcy with the current debt limit?
According to an article in Bloomberg, businesses across the country have been looking for “creative” strategies to reduce debt in order to qualify for Subchapter V. Are there actually options to do this? Depending on a small business’s circumstances, it may be possible to negotiate debt with creditors, or consider whether certain claims may be able to be reclassified. However, before your business attempts to make any “creative” attempts to reduce debt, as Bloomberg describes it, you should seek specific advice from a bankruptcy attorney who regularly handles business bankruptcies and Subchapter V cases.
Contact Our West Palm Beach Bankruptcy Attorneys for Assistance
Is your business considering a bankruptcy filing but trying to qualify for Subchapter V rather than a traditional Chapter 11 case? It is important to discuss your business’s specific financial circumstances with a bankruptcy attorney who can assist you. We can assess your eligibility for Subchapter V and discuss options for meeting Subchapter V eligibility requirements, but we can also assist you with a traditional Chapter 11 filing. Although Subchapter V has been marketed as a less expensive and less complex type of bankruptcy, this is not always the case for all businesses that file.
Depending on your circumstances, a traditional Chapter 11 filing might ultimately make the most sense for your business. An experienced West Palm Beach bankruptcy lawyer at Kelley, Fulton, Kaplan & Eller can speak with you today about your options, and we can begin working with you on your business bankruptcy. Contact our firm for more information.
Sources:
law.cornell.edu/uscode/text/11/chapter-11/subchapter-V
news.bloomberglaw.com/bankruptcy-law/small-businesses-find-workaround-amid-bankruptcy-debt-limit-drop
