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What Is Subchapter V?

Bankruptcy1

When you hear or read about a reference to Subchapter V bankruptcy, you should know that this term refers to Subchapter V of Chapter 11 under the U.S. Bankruptcy Code. This specific subchapter of Chapter 11 is quite new, and it is designed for small business debtors to make the process of reorganization bankruptcy easier and more straightforward. What do you need to know about Subchapter V? Our West Palm Beach bankruptcy attorneys can provide you with more information about this form of bankruptcy for small businesses in Florida.

Learning More About the History of Subchapter V 

Subchapter V, which is a new subsection of Chapter 11 bankruptcy, did not exist until 2019 with the passage of the Small Business Reorganization Act (SBRA). The bill was passed in 2019 and took effect in February 2020, at which point small businesses were eligible to file for bankruptcy under Subchapter V of Chapter 11. It is referred to colloquially as Sub V.

How Does Subchapter V Work? 

With Subchapter V, the debt reorganization process of Chapter 11 is simplified and streamlined for small businesses. Debtors who are eligible to file under Subchapter V are not responsible for U.S. Trustee fees, the debtor is not responsible for fees associated with Official Committees of Unsecured Creditors, and the disclosure statement process is removed. In addition, businesses filing for bankruptcy under Subchapter V must create and file a reorganization plan within 90 days from the date of filing for Subchapter V under Chapter 11. Moreover, the debtor’s repayment plan can be confirmed without approval from creditors as long as the plan is equitable and does not discriminate among the creditors. Finally, Subchapter V allows the individual business owner to retain their equity in the business once the Subchapter V plan is confirmed.

For the reasons cited above, along with fewer reporting requirements and creditor limitations, Subchapter V allows for a much quicker bankruptcy process than a regular case under Chapter 11, and it also costs less.

Eligibility for Subchapter V 

Up until March 2022, a small business could be eligible for Subchapter V with debt or up to $7.5 million. However, that debt limit decreased significantly after March 2022, and the debt limit is currently at $2,725,625. If your business owes more than that amount in debt, it will not be eligible to file for bankruptcy under Subchapter V and will need to go through a traditional Chapter 11 case in order to reorganize debt.

Seek Advice from a West Palm Beach Bankruptcy Lawyer 

If your business is struggling with debt, you may be able to keep your business open while reorganizing debt through a Chapter 11 bankruptcy, or in some cases a Chapter 13 bankruptcy if your business is a sole proprietorship. For some small businesses, Subchapter V can allow for a quicker, more cost-effective, and more streamlined reorganization bankruptcy, but it will be important to work with a lawyer to determine your eligibility for Subchapter V or another type of reorganization bankruptcy.

Do not hesitate to contact one of the dedicated West Palm Beach Chapter 11 bankruptcy attorneys at Kelley, Fulton & Kaplan to learn more about how we can assist you.

Sources:

law.cornell.edu/uscode/text/11/chapter-11/subchapter-V

congress.gov/bill/116th-congress/house-bill/3311/text

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