Small Business Bankruptcy
Subchapter V Bankruptcy In Minneapolis, MN
Subchapter V is a streamlined form of Chapter 11 for small businesses. It lets a qualifying business keep operating, restructure its debts and confirm a repayment plan without needing creditors to approve it, as long as the court finds the plan fair and equitable. Created by the Small Business Reorganization Act of 2019 and found at 11 U.S.C. §§ 1181 to 1195, it is generally faster and less costly than a traditional Chapter 11.
How It Works
What IsSubchapter V?
Whitlock Reyes LLP helps small business owners in Minneapolis, Saint Paul and across the Twin Cities decide whether it fits, and then carries the case from petition to plan.
A note on the name: you may see it called "Chapter 5" online. It is Subchapter V of Chapter 11. Chapter 5 of the Bankruptcy Code is something else entirely.
Tobias Reyes
Name Partner, Whitlock Reyes LLP
Practice Areas
Who It Is For
Who Is Subchapter VFor?
Related pages
Owners of small businesses under financial strain who want to keep the doors open: contractors, shops, restaurants, professional practices and service companies. It suits an owner who believes the business can work with a lighter debt load and who wants to stay in charge of the decisions.
To qualify, the business must be engaged in commercial or business activity, at least half of its debt must come from that activity, and its total debts must fall under the Subchapter V debt limit in effect on the day it files, a limit Congress has changed more than once.
Step By Step
How Does A Subchapter VCase Run?
Eligibility check
The kind of business and the total of its debts are checked first, against the limit in effect on the filing date.
Filing and the trustee
Filing brings the automatic stay. A Subchapter V trustee is appointed to help the case along.
Status conference
The court holds an early status conference, generally within 60 days of filing, to keep the case moving.
A plan within 90 days
The business generally must file its plan within 90 days of filing, far sooner than a traditional Chapter 11.
The plan
The business pays what it can from its projected disposable income, typically over three to five years.
Confirmation
The court can confirm a fair and equitable plan even if creditors do not vote for it, and the owners can keep their ownership.
The Details
What Can It Change ForYour Business?
| Topic | What to know |
|---|---|
| You keep control. | You make the decisions about your business as debtor in possession. Creditors do not get a veto over a plan the court finds fair and equitable. |
| Unsecured debt can be restructured. | The plan can reduce what is paid on unsecured debt, based on what the business can realistically afford. |
| Owners can keep their equity. | In a traditional Chapter 11, owners can lose their stake unless creditors are paid in full. Subchapter V removes that rule for a plan the court confirms. |
| Some home mortgages can be modified. | Where a mortgage on the owner's home secured borrowing used mainly for the business, it may be possible to modify it in the plan. |
| Lower costs. | There is usually no creditors' committee, often no separate disclosure statement, and no quarterly United States Trustee fees. |
In Detail
Subchapter V,Question By Question.
How is it different from a traditional Chapter 11?
Subchapter V is shorter, cheaper and more predictable for a small business. Only the business can propose a plan, the deadlines are tighter, and the trustee's job is to help the parties reach an agreed plan rather than to take over. The tradeoffs are the debt limit and the requirement to commit projected disposable income to the plan, typically for three to five years.
For many owners, the practical difference is that the case is built around keeping the business open and the owners in place, rather than around a creditor vote the owners may lose.
What do the first weeks look like?
The first weeks of a Subchapter V case are busy. The business files its petition and schedules, opens a debtor-in-possession bank account, and gives the trustee and the United States Trustee its recent financial statements and tax returns. An initial interview with the United States Trustee's office and the meeting of creditors follow, and the court holds its status conference, generally within 60 days, to hear how the business plans to reach a confirmed plan.
What if the business cannot be saved?
Sometimes the numbers show that the business cannot carry even a reduced debt load. Then the conversation turns to the other routes: an orderly Chapter 7 liquidation, an out-of-court wind-down with creditors, or, for an owner who signed a personal guaranty, a separate look at the owner's own options. Knowing that early is still worth something, because it protects the owner's personal position while there are choices left.
What should you bring?
Two years of business tax returns, a current profit and loss statement and balance sheet, a list of creditors and balances, your leases, loan documents and any business debt you signed for personally, and a rough projection of the next twelve months.
Questions
Questions AboutSubchapter V.
When to call us
Call for a free consultation. You will learn whether the business qualifies, whether Subchapter V or another option makes more sense, and what the first weeks of a case would ask of you.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
(555) 014-2200Is Subchapter V the same as Chapter 5 bankruptcy?
No. Subchapter V is part of Chapter 11. "Chapter 5" is a common mix-up: Chapter 5 of the Bankruptcy Code holds general rules about creditors, debtors and the estate, not a type of filing.
Do I need creditor approval for a Subchapter V plan?
Not necessarily. The court can confirm a plan without creditor approval if it finds the plan fair and equitable and the other requirements are met.
Does my business qualify?
It depends on the kind of business and the total of its debts, which must fall under the Subchapter V limit in effect when you file. That is one of the first things checked.
Can I keep running my business during the case?
In general, yes. The business keeps operating and the owner stays in control, with a Subchapter V trustee overseeing the process.
What does the Subchapter V trustee do?
The trustee monitors the case, reviews the business's finances and helps the business and its creditors reach an agreed plan. The business stays in control of its day-to-day operations.
What if the plan is confirmed without creditor votes?
In that case the trustee usually makes the plan payments to creditors, and the discharge generally comes after the plan payments are completed rather than at confirmation.
Do I still owe on a personal guaranty?
A Subchapter V case for the business does not automatically release an owner who signed a personal guaranty for a business debt. How a guaranty is handled, and whether the owner needs a separate plan, is part of the first conversation.
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