What is Subchapter V Bankruptcy?

Understanding Subchapter V

Subchapter V is a specialized part of the U.S. Bankruptcy Code, introduced by the Small Business Reorganization Act of 2019. It is specifically designed for small business debtors, providing a streamlined process for reorganization under Chapter 11 bankruptcy laws. The primary purpose of Subchapter V is to allow small businesses to restructure their debts more efficiently and cost-effectively, making the bankruptcy process less daunting and more accessible for small enterprises.

Contact J. Singer Law Group, PLLC to schedule a consultation with a lawyer today. (917) 905-8280

Key Features of Subchapter V Bankruptcy

• Simplified Plan Confirmation

One of Subchapter V's distinguishing features is its simplified plan confirmation process, which eliminates the need for a disclosure statement—a document typically required in traditional Chapter 11 cases. This simplification reduces legal costs and expedites the reorganization process.

• No Creditor Committee

In standard Chapter 11 proceedings, a committee of creditors can be appointed to represent the interests of the unsecured creditors, potentially complicating the reorganization plan. Subchapter V generally does not require a creditors' committee unless specifically ordered by the court, which streamlines negotiations.

• Debtor in Possession

Subchapter V allows the small business owner to remain in control of the business as a "debtor in possession." This control enables the business to continue operating while implementing the reorganization plan, unlike Chapter 7, where the business is liquidated.

• Expedited Timeline

The process under Subchapter V is designed to be completed quickly, typically within 90 days of filing. Debtors are required to submit a reorganization plan within this time frame, speeding up the reorganization process compared to traditional Chapter 11 cases.

• Reduced Administrative Burden

Subchapter V reduces the debtor's administrative burden by appointing a trustee to oversee the process. This trustee helps facilitate the development of a consensual reorganization plan and monitors its implementation, unlike the more intensive management role trustees take in other bankruptcy chapters.

How Subchapter V Differs from Chapters 7 and 11

Compared to Chapter 7

Chapter 7 bankruptcy involves liquidating the debtor's assets to pay creditors, typically leading to the cessation of business operations. In contrast, Subchapter V focuses on reorganization and allows the business to continue running, providing a pathway to recover and potentially thrive post-bankruptcy.

Compared to Traditional Chapter 11

While Subchapter V and traditional Chapter 11 involve reorganization, Subchapter V is tailored for smaller businesses with less complex debt structures. It is less costly, involves fewer procedural requirements, and is designed to conclude more quickly than traditional Chapter 11, which can be lengthy and expensive due to its comprehensive and complex nature.

Subchapter V's focused approach specifically serves the needs of small businesses, allowing them to navigate financial hardship with a process suited to their scale and resources.

Eligibility Requirements for Subchapter V

Subchapter V provides a restructuring pathway tailored for small business debtors, but businesses must meet specific criteria to utilize this process.

Who Can File?

●   Small Business Debtors: The term "small business debtor" includes entities and individuals engaged in commercial or business activities.

●   Affiliates: Subchapter V is also accessible to the small business debtor's affiliates, provided they collectively meet the eligibility requirements.

●   Business Activities: The debtor must be engaged in commercial or business activities other than owning or operating real property.

Monetary Thresholds

●   Debt Limit: As of the latest adjustment, the debt limit for filing under Subchapter V is $7,500,000. This total includes both secured and unsecured debts.

●   Percentage of Business Debt: At least 50% of the total debt must have arisen from business activities, excluding debts owed to insiders such as family members or business affiliates.

Other Specific Criteria

●   Good Faith Requirement: The filing must be made in good faith, which will be assessed based on the nature of the debt and the debtor’s financial history and activities.

●   Previous Filings: Debtors with prior bankruptcy filings might face additional scrutiny or be precluded from filing under Subchapter V if certain conditions of earlier cases have not been met.

Determining Eligibility

To determine eligibility for Subchapter V, businesses should undertake the following steps:

1. Assess Total Debt: Calculate the total debt amount to ensure it does not exceed the $7,500,000 threshold. Include all contingent, liquidated, and unliquidated debts.
2. Evaluate the Nature of Debt: Verify that at least 50% of the debt resulted from commercial or business activities.
3. Review Previous Bankruptcy Filings: If there have been previous bankruptcies, check the outcomes and any court orders that might affect eligibility.
4. Consider Legal Consultation: Due to the complexities of assessing eligibility, it is advisable to consult with a bankruptcy attorney who can provide detailed analysis and guidance based on the latest legal standards and changes.

Understanding these requirements and adequately evaluating a business’s eligibility can help ensure a smooth filing process and successful navigation of Subchapter V bankruptcy. At J. Singer Law Group our experienced bankruptcy attorneys have the knowledge and skill to navigate your small business out of debt to organization and restructuring.

Benefits of Subchapter V Bankruptcy

Subchapter V offers several advantages to make bankruptcy more accessible and less burdensome for small businesses. These benefits streamline the process and enhance the chances of a successful reorganization.

Simplified Plan Confirmation Process

●   No Disclosure Statement Required: Unlike traditional Chapter 11, Subchapter V does not require a disclosure statement, simplifying the filing process and reducing associated costs.

●   Streamlined Plan Approval: The bankruptcy court can confirm a debtor’s plan even without the unanimous consent of all creditors, provided the plan does not discriminate unfairly and is deemed fair and equitable.

No Creditor Committee Unless Ordered

●   Reduced Complexity and Expense: Typically, Subchapter V does not require forming a creditors' committee, which is common in other forms of Chapter 11. This absence can significantly reduce legal and administrative costs, as the committee often complicates negotiations.

●   Faster Negotiations: Without a creditors' committee, the debtor can negotiate directly with creditors, leading to quicker consensus and plan confirmation.

Role of the Trustee

●   Facilitator and Overseer: In Subchapter V, a trustee is appointed to help facilitate the development of a consensual reorganization plan and oversee its implementation. This role is more supportive and less adversarial than in other bankruptcy chapters.

●   Mediation Assistance: The trustee can mediate between the debtor and creditors, helping forge a feasible and mutually agreeable plan.

Specific Benefits for Small Businesses

●   Continued Operation: Small business debtors can continue operating their businesses while going through bankruptcy, maintaining customer relationships, and generating income.

●   Reduced Burdens: The procedural and financial burdens are significantly reduced, making it more feasible for small businesses with limited resources to reorganize effectively.

●   Opportunity for Quick Turnaround: The expedited process under Subchapter V allows businesses to emerge from bankruptcy quicker, which is crucial for small enterprises that need to adapt rapidly to market conditions.

●   Debt Repayment Flexibility: Subchapter V allows debtors to modify certain secured debts and extend debt maturities, potentially lowering the amount of periodic payments.

●   Retention of Control: Business owners retain control of their operations as "debtors in possession," unlike in other bankruptcy proceedings where a trustee might take over business operations.

Process and Timeline of Subchapter V Bankruptcy

Subchapter V bankruptcy is designed to be more streamlined and expedited than other chapters. Its efficiency and more straightforward procedural requirements mainly benefit small business debtors. Here’s a step-by-step breakdown of the process from filing to discharge, along with a discussion of the typical timeline.

Step-by-Step Process

1. Filing the Petition: The process begins with the debtor filing a voluntary petition for relief under Subchapter V. This filing includes basic financial statements such as a list of assets and liabilities, a statement of financial affairs, and a list of executory contracts and leases.
2. Appointment of Trustee: Shortly after filing the petition, a trustee is appointed to oversee the case. The trustee’s role includes facilitating the development of a reorganization plan, managing business operations, and ensuring compliance with bankruptcy procedures.
3. Status Conference: Within 60 days of filing, a status conference is held before the bankruptcy judge to discuss the progress toward developing a consensual reorganization plan.
4. Filing of the Plan: The debtor must file a reorganization plan within 90 days of the petition date. This plan should propose how to deal with the debtor’s liabilities and operate moving forward.
5. Plan Confirmation Hearing: A plan confirmation hearing is scheduled after the plan is filed. Creditors may object to the plan, and the court will consider whether it complies with legal requirements and is feasible.
6. Confirmation of the Plan: If the plan is confirmed, the debtor begins making payments according to the plan’s terms. The plan typically lasts 3-5 years.
7. Discharge: Upon completing all payments under the plan, the debtor receives a discharge of most remaining debts.

Typical Timeline

●   Day 1: Petition is filed.

●   Within 60 days: Status conference with the court.

●   Within 90 days: Filing of the plan of reorganization.

●   3-6 months after filing: Plan confirmation hearing, depending on the complexity of the case and the court’s schedule.

●   3-5 years after plan confirmation: Completion of plan payments and discharge.



Emphasizing the Expedited Nature

Subchapter V's expedited timeline is crucial for small businesses, allowing them to quickly reorganize and reduce the time they are in financial uncertainty. The requirement to file a plan within 90 days, combined with the streamlined plan confirmation process and the absence of a creditors’ committee, significantly speeds up the process compared to traditional Chapter 11 reorganizations. This expedited process helps businesses resume normal operations sooner and with less disruption, crucial for maintaining customer relationships and business viability.

How Subchapter V Bankruptcy Attorneys Can Help

At J. Singer Law Group, we specialize in providing comprehensive legal services tailored to small businesses considering Subchapter V bankruptcy. With the extensive experience of our seasoned attorneys, Jeb Singer and Ira Reid, our firm is uniquely equipped to guide businesses through the complexities of debt reorganization. Here’s an outline of how we can assist:

Expert Guidance Through the Filing Process

●   Initial Consultation: We will begin by thoroughly assessing your financial situation to determine whether Subchapter V is the best option for your business.

●   Preparation and Filing: Our team handles all aspects of the bankruptcy filing, ensuring that all necessary documentation is accurately and promptly submitted. This includes preparing the petition, financial statements, and other requisite schedules and forms.

Development of a Strategic Reorganization Plan

●   Customized Plan Creation: Leveraging our deep understanding of bankruptcy law, we tailor a reorganization plan that aligns with your business’s unique needs and goals. Our plans are designed to meet legal standards and position your business for post-bankruptcy success.

●   Negotiation with Creditors: Attorneys Jeb Singer and Ira Reid lead talks with creditors to secure favorable terms, aiming for a consensual plan that benefits all parties involved.

Representation at Court Proceedings

●   Status Conferences and Hearings: Our attorneys represent your interests at all required court appearances, including the initial status conference and the plan confirmation hearing. We advocate vigorously on your behalf to facilitate a smooth process through the court system.

Ongoing Support and Implementation

●   Management of Plan Payments: J. Singer Law Group assists in setting up and managing the disbursement of payments under the confirmed plan, ensuring compliance with the bankruptcy court’s terms.

●   Legal Advice During the Payment Period: Throughout the bankruptcy plan, we provide ongoing legal counsel to navigate any issues and adjust as needed to continue business operations.



Achieving a Successful Discharge

●   Completion of Plan Terms: Our team monitors your progress toward completing the bankruptcy plan’s terms, offering support to ensure you meet all requirements for a successful discharge.

●   Post-discharge planning: After discharge, we help you plan your business's next steps, focusing on long-term financial health and stability.