Law Offices of Nicholas Gebelt

The Subchapter V Chapter 11

Subchapter V (also known as the Small Business Reorganization Act) was added to Chapter 11 to enable small businesses to reorganize without some of the difficulties of a standard Chapter 11. It went into effect in February 2020.

As with a standard Chapter 11, the Subchapter V debtor proposes a plan of reorganization, and the creditors vote on the plan. However, there are some very important differences:

  • The Court can confirm a nonconsensual plan as long as it satisfies the other statutory requirements of a Chapter 11 plan.
  • There is no absolute priority rule.
  • The debtor does not have to pay quarterly fees to the U.S. Trustee.
  • Unlike the standard Chapter 11 that does not have a Chapter 11 Trustee — unless something has gone terribly wrong — there is a Subchapter V Trustee. That Trustee’s main role is working to get the plan confirmed. Once the plan is confirmed, the Trustee’s role ends, unless the plan is nonconsensual.
  • If the debtor is the owner of the business, the debtor can modify a debt secured by the debtor’s principal residence, provided the debt was incurred to obtain money to fund the business.
  • In a standard Chapter 11, if the debtor has not propounded a plan within a time called the exclusivity period, then anyone can propose a plan. In a Subchapter V, only the debtor can propose a plan.

The key eligibility impediment is a debt ceiling: The debtor’s total noncontingent, liquidated debt cannot exceed $2,725,625, and at lease 50% of the debt must have arisen from the debtor’s commercial and business activities.

In sum, Subchapter V offers a relatively streamlined alternative to the standard Chapter 11 for the small business debtor.

For more information on Subchapter V Bankruptcy In The State Of California, a free 20 minute phone strategy session is your next best step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.

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