Clarifying Subchapter V Eligibility
If your business has been considering a Subchapter V bankruptcy filing, you may be aware that one of the eligibility requirements changed in summer 2024 with the sunsetting of a provision in federal law. With much news surrounding the revised eligibility factor, and significant news about a stark rise in Subchapter V bankruptcy cases leading up to the provision’s sunsetting, you may be unsure about your eligibility to file. Our West Palm Beach bankruptcy lawyers want to clarify the key points of Subchapter V eligibility for you and to explain clearly what the sunsetting of the legal provision back in June 2024 means for your business in relation to a Subchapter V filing.
Understanding the Sunsetting of the Debt Ceiling Expansion
The only aspect of subchapter V eligibility that changed in June 2024 was the debt ceiling. Prior to the sunsetting of that provision in federal law, the debt ceiling for a Subchapter V filing was $7.5 million. On June 21, 2024, that provision “sunsetted,” meaning that it reverted to the law before that expanded debt ceiling was temporarily instituted. As of June 21, 2024, the debt ceiling for a Subchapter V filing is $3,024,725. No cases filed prior to that date are impacted, but any business filing for Subchapter V bankruptcy on or after June 21, 2024 will need to comply with the current debt ceiling.
What will happen if you want to file for Subchapter V bankruptcy but your business’s debt is greater than the present limit? In short, you will likely just consider a different type of reorganization bankruptcy instead. Your business will likely be eligible for a traditional Chapter 11 filing, but it could be eligible for another type of streamlined reorganization bankruptcy, as well. You should discuss options with a bankruptcy attorney.
Remaining Eligibility Requirements for Subchapter V
Aside from the change to the debt ceiling, no requirements for Subchapter V bankruptcy have changed. Those requirements are as follows:
- You (the debtor) must be engaged in commercial or business activities;
- Your commercial or business activities must include something other than primarily owning or operating a single piece of real property; and
- At least 50 percent of your debt when filing must have come from your commercial or business activities.
If you meet these three requirements, in addition to the debt ceiling requirement, you may be eligible for Subchapter V bankruptcy. Many smaller businesses can benefit from this type of bankruptcy as opposed to a traditional Chapter 11 case because it is less complicated, less time-consuming, and less expensive for the debtor.
Contact a West Palm Beach Bankruptcy Lawyer Today
If your business is considering bankruptcy and you want to find out about eligibility for a Subchapter V filing, you should get in touch with one of the experienced West Palm Beach bankruptcy attorneys at Kelley, Kaplan & Eller as soon as possible. We can discuss your eligibility for Subchapter V and other types of reorganization bankruptcies designed for businesses. Our attorneys represent clients in a wide range of individual and corporate bankruptcies, and our firm can begin working with you today. Contact us for additional 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
