What Are The Differences Between Traditional Chapter 11 And Subchapter V?
If you own a business and you are considering Chapter 11 bankruptcy, you may be wondering about the differences between a traditional or ordinary Chapter 11 case and a Subchapter V case. As you may know, Subchapter V of Chapter 11 became available to small business debtors through the Small Business Reorganization Act of 2019. Subchapter V was created to streamline the process of filing for Chapter 11 bankruptcy for small business debtors, and to make it easier for a small business to go through the Chapter 11 process in order to reorganize debts and keep their businesses running. Yet understanding whether you qualify for Subchapter V, and the specific distinctions between the two kinds of bankruptcy, can be complicated. What are the key differences between a traditional Chapter 11 bankruptcy and Subchapter V bankruptcy? Our West Palm Beach bankruptcy lawyers can provide you with more information.
Streamlined Bankruptcy Process for Subchapter V
The major and overarching difference between an ordinary Chapter 11 bankruptcy case and a Subchapter V case is that Subchapter V bankruptcy is aimed at allowing small business debtors that otherwise might struggle with a traditional Chapter 11 case to go through a reorganization bankruptcy without the financial burdens of an ordinary Chapter 11 case, and without the lengthy time requirements for a traditional Chapter 11 case. In short, Subchapter V is a most cost-effective and time-effective bankruptcy process for small business debtors that otherwise might struggle with a traditional Chapter 11 case.
The majority of the specific differences between a traditional Chapter 11 case and Subchapter V are what make Subchapter V more cost-effective and streamlined for small businesses.
Debt Limit for Subchapter V
In creating a streamlined reorganization bankruptcy process for small business debtors, lawmakers placed a debt limit on Subchapter V cases. When Subchapter V was initially created, it had a debt limit of $2,725,625. Through the Coronavirus Aid, Relief, and Economic Security Act of 2020, that debt limit was increased to $7.5 million until spring 2022. The recently passed Bankruptcy Threshold Adjustment and Technical Corrections Act extended that increased debt limit for Subchapter V. That Act also expanded the definition of a small business debtor eligible for Subchapter V, clarifying that “a small business debtor includes a debtor that is an affiliate of certain publicly traded companies.”
Removal of Requirements for Subchapter V
For a Subchapter V bankruptcy, a number of requirements associated with a traditional Chapter 11 case are removed. Most significantly, Subchapter V does not require a Committee of Creditors, which in turn reduces costs associated with a traditional Chapter 11 bankruptcy. In addition, a small business debtor in a Subchapter V case does not have to file a Disclosure Statement, which limits the role that creditors can play in the reorganization. There is also no absolute priority rule for Subchapter V cases, which means that small business debtors in a Subchapter V case can “cram down” in a way that traditional Chapter 11 debtors cannot.
Reorganization Plan Distinctions in Subchapter V
The requirements or rules for a Subchapter V reorganization plan are also a bit different. With Subchapter V, creditors cannot file competing reorganization plans, which means that only the debtor’s plan can be approved for use. In addition, a small business debtor can have a Subchapter V reorganization plan approved with creditor consent.
Contact a Chapter 11 Bankruptcy Lawyer in West Palm Beach
In addition to the differences discussed above, there are more distinctions between a traditional Chapter 11 case and a Subchapter V case that the West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller can discuss with you.
Sources:
congress.gov/bill/116th-congress/house-bill/3311/text
congress.gov/bill/117th-congress/senate-bill/3823
