When Can a Business File for Subchapter V?
For any small business owner dealing with a financial downturn and the anticipation that business profits will pick up again in the future, a reorganization bankruptcy might be in consideration. If you have followed recent changes to business bankruptcy law, you likely know that the Small Business Reorganization Act of 2019 (SBRA) added the new “Subchapter V” bankruptcy to Chapter 11. To be sure, Subchapter V is a specific type of Chapter 11 bankruptcy for small businesses designed to do the following, according to the Department of Justice: “to increase a debtor’s ability to negotiate a successful reorganization while retaining control of the business; to reduce ‘unnecessary procedural burdens and costs’ by eliminating the creditors’ committee and disclosure statement requirements for the plan of reorganization; and to increase oversight and ensure quick reorganizations.”
In other words, Subchapter V makes it easier for small businesses to go through a successful reorganization bankruptcy. Can your business file for Subchapter V, and what are the requirements for a Subchapter V filing? Consider the following information from our bankruptcy attorneys in West Palm Beach.
General Eligibility for Both Chapter 11 and Subchapter V Eligibility
General, overarching eligibility for a Chapter 11 bankruptcy also applies to a Subchapter V bankruptcy case, although there are more specific eligibility requirements for Subchapter V that we will explain below. The Bankruptcy Code allows businesses (or individuals) to file for Chapter 11 bankruptcy if they are seeking to reorganize debts. Your business does not need to be insolvent in order to be eligible for a traditional Chapter 11 bankruptcy or for a Subchapter V bankruptcy.
Specific Eligibility Requirements for Subchapter V
While a traditional Chapter 11 bankruptcy does not have a list of eligibility requirements, it is essential to know that Subchapter V does have a couple of specific eligibility requirements that your business must meet in order to be eligible to file. Those general requirements include the following:
- At least 50 percent of the debt being reorganized must come from business activities (so, an individual can also file for Subchapter V bankruptcy in certain circumstances, but it is primarily designed for small business debtors); and
- Must be below the debt limit of $7.5 million (otherwise, your business will need to file for a traditional Chapter 11 bankruptcy).
That debt limit represents a temporary increase, which will “sunset” on June 21, 2024 unless it is renewed. The higher debt limit of $7.5 million has already been renewed three times, so it is possible that Congress will renew that upper debt limit again, but it is not certain.
Contact a West Palm Beach Bankruptcy Attorney Today
Are you wondering if your business is eligible for a Subchapter V bankruptcy? Or are you ready to get started on a Subchapter V bankruptcy filing? You should contact one of the experienced West Palm Beach bankruptcy lawyers at Kelley, Kaplan & Eller for assistance. Although Subchapter V cases are more streamlined and less complicated than a traditional Chapter 11 bankruptcy case, they are nonetheless complex, and you should have a dedicated attorney on your side to ensure that your business meets all requirements and takes all necessary steps to restructure debt.
Sources:
law.cornell.edu/uscode/text/11
justice.gov/ust/file/subchapterv_trustee_handbook.pdf/download
