Top Things to Know About Subchapter V Bankruptcies

Subchapter V is a relatively new type of bankruptcy that can make a reorganization bankruptcy significantly less complicated and less costly for smaller businesses in South Florida. Subchapter V became an option in terms of types of bankruptcy filings in 2020 when the Small Business Reorganization Act of 2019 (or SBRA) took effect. It is a subchapter of Chapter 11 bankruptcy — thus the name of this type of bankruptcy — but it is a more streamlined type of reorganization bankruptcy for small businesses with limited amounts of debt.

If your company is considering a reorganization bankruptcy filing, it will be essential to determine whether your business is eligible for a Subchapter V filing. To help you understand the basics of this type of bankruptcy, our West Palm Beach bankruptcy lawyers can  provide you with more information about the key things to know about Subchapter V.

Subchapter V is a Type of Reorganization Bankruptcy 

As a subchapter of Chapter 11 bankruptcy, Subchapter V bankruptcy is also a type of reorganization bankruptcy. What this means is that a business filing for Subchapter V bankruptcy will restructure debt and remain open while making payments as part of a repayment plan.

Lower Debt Limit for Subchapter V Eligibility 

In order to be eligible for Subchapter V, you will need to ensure that your business has debts below the limit set by the law. The current debt limit is $7.5 million, which will remain the limit through June 21, 2024. After that point, Congress may renew that extended debt limit or it may revert to a much lower debt limit of $2.75 million. It will be important to discuss your business’s total debt with a lawyer when determining your eligibility for Subchapter V.

Streamlined Process from a Traditional Chapter 11 Case 

Subchapter V was designed as a streamlined form of Chapter 11 bankruptcy. Most significantly, there is no disclosure statement required, and this type of bankruptcy has a shorter timeline.

Basic Requirements for Subchapter V 

While nearly all businesses can be eligible to file for Chapter 11 bankruptcy, Subchapter V has specific requirements. In order for your business to be eligible for a Subchapter V case, there are three elements that must be met. All of the following must be true for a Subchapter V debtor:

• Engaged in commercial or business activities (which cannot be primarily owning/operating one piece of real property);
• Total debts of $7.5 million or less (up until June 2024 at least); and
• At least 50 percent of debts must be from commercial or business activities.

Contact Our West Palm Beach Bankruptcy Attorneys Today 

If your business is considering a reorganization bankruptcy, you should get in touch with an experienced West Palm Beach bankruptcy lawyer at Kelley, Kaplan & Eller, PLLC to find out more about your options. Your business could be eligible to file for Subchapter V bankruptcy. Even if your business is not eligible for Subchapter V, we can discuss other reorganization bankruptcy options with you, including a traditional Chapter 11 bankruptcy filing. Contact us today for more information.

Sources:

justice.gov/ust/subchapter-v

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics#:~:text=In%20order%20to%20file%20a,from%20the%20commercial%20or%20business