Subchapter V and Debts Under Section 523(a)
Since 2019 and the passage of the Small Business Reorganization Act (SBRA), many small businesses in Florida and throughout the country have been eligible to file for a new type of bankruptcy designed specifically for smaller businesses called Subchapter V. This type of reorganization bankruptcy is a subchapter type of the traditional reorganization bankruptcy for businesses, Chapter 11. While Chapter 11 and Subchapter V have some overlapping elements, there are different requirements for these types of bankruptcy that, in theory, are supposed to make Subchapter V more streamlined than a traditional reorganization case. As a new type of bankruptcy, however, various legal issues have arisen since this type of bankruptcy became an option. One of those issues is the treatment of debts classified under Section 523(a) of the US Bankruptcy Code.
Section 523(a) outlines the “exceptions to discharge” in a bankruptcy case. Exceptions to discharge include various types of debts such as, for example, tax debts, family support debt, and educational debt (the latter has an exception to the exception — when the debtor can show an “undue hardship”). Debts that have been incurred through fraud are also ineligible for discharge in this section. But how does this section, designed for individual debtors, apply to Subchapter V debtors? Or does it apply at all? That is a question that several circuit courts have been addressing, and the Eleventh Circuit — which governs Florida cases — recently weighed in on corporate debtors seeking to discharge “exceptions to discharge” in Subchapter V.
Case of BenShot, LLC v. 2 Monkey Trading, LLC (2025)
The Eleventh Circuit heard the case of BenShot, which involved corporate debtors filing for Subchapter V bankruptcy after a creditor obtained a judgment against them for “a non-dischargeable debt for willful and malicious injury” under Section 523(a). The initial bankruptcy court determined that the debt could be discharged because Section 523(a) only applied to individual debtors and not to corporate debtors.
The Fourth and Fifth Circuit Court of Appeals have both already weighed in on this issue, ruling that corporate debtors in Subchapter V cases cannot discharge Section 523(a) debts. The Ninth Circuit, differently, ruled that these debts can be discharged. In deciding BenShot, the Eleventh Circuit agreed with the Fourth and Fifth Circuits and held that “both individual and corporate debtors cannot discharge any debtors of the kind listed in Section 523(a).”
Accordingly, small business debtors filing for Subchapter V in Florida should expect that they will not be eligible to discharge debts identified as “exceptions to discharge” under Section 523(a).
Contact Our West Palm Beach Bankruptcy Attorneys for Assistance with Your Business Reorganization Bankruptcy
If your business is considering a Subchapter V bankruptcy filing or any type of reorganization bankruptcy, it is crucial to seek legal advice in order to have a clear understanding of how the process will work and what debts will be eligible for discharge. At Kelley Kaplan Delaney & Eller, PLLC, we have years of experience representing small businesses in bankruptcy cases in South Florida, and we can discuss your circumstances with you today. Do not hesitate to get in touch with an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC for assistance. Contact our firm to learn more.
Source:
law.justia.com/cases/federal/appellate-courts/ca11/23-12342/23-12342-2025-07-09.html
