subchapter v bankruptcy lawyer

Basics of a Small Business Bankruptcy

Subchapter V took effect in February 2020. This subchapter is exclusively for the small business debtor to help them expedite a small business bankruptcy.

Subchapter V has many similarities to a traditional Chapter 11 bankruptcy but without the extra costs and other procedures that can make a Chapter 11 quite burdensome. Subchapter V also increases a debtor's ability to quickly negotiate a reorganization and keep control of the business with increased oversight.

The main difference between a traditional Chapter 11 and a Subchapter V bankruptcy filing is that Subchapter V is only for small business debtors. In this type of bankruptcy, a U.S. Trustee is appointed to every case to control estate funds and supervise and help develop a plan everyone can agree on.

There is no longer an official committee of unsecured creditors appointed, and there are no more quarterly fees paid to the U.S. Trustee. Subchapter V means the small business owner retains equity in the business so long as the ultimate reorganization plan does not discriminate unfairly and is equitable for each class of interests.

Within two months of the launching of Subchapter V, it was amended to make it available to more small businesses. The original version stated that a debtor was eligible to file if the debt did not exceed $2,725,625. With the Coronavirus Aid, Relief, and Economic Security Act (CARES), the debt limit was increased to $7,500,000.

Subchapter V bankruptcy is different from a Chapter 11 bankruptcy. Below is an outline of the main differences:

  • The process is quick.
  • More controls are in place for the debtor.
  • No disclosure statement is required.
  • A Subchapter V requires creditor support.
  • A trustee is appointed for all Subchapter V cases.
  • Administrative claims may be paid over a period of time.
  • The debtor can keep their equity in the business.

If you or a loved one are considering a Subchapter V bankruptcy contact Melaragno, Placidi & Parini, bankruptcy attorneys. At Melaragno, Placidi & Parini, we have decades of experience helping debtors through the bankruptcy process. Give us a call today for your free consultation at 814-459-5557.