What Are the Advantages to a Subchapter V Bankruptcy?

“Subchapter V is better than a regular Chapter 11,” says Charity S. Bird, a bankruptcy attorney at Kaplan Johnson Abate & Bird in Louisville, Kentucky.

“You don’t have to pay quarterly fees, you don’t have to get a consensual plan through, your creditors don’t get to torpedo it if they want to. You’re able to propose a plan and the only person that you have to make happy with your plan is your Subchapter V trustee.”

Deciding if Subchapter V Is Best for Your Small Business

So how do you know if a Subchapter V bankruptcy is right for your small business?

First, since Subchapter V is designed to shorten debtors’ time in bankruptcy court, you have to be interested in a swift reorganization of your business. After that, Bird says, assuming a debtor qualifies within the debt limits, “a Subchapter V would be right for most entities.”

Get Experienced Legal Guidance for Your Bankruptcy

You do not have to go through bankruptcy alone. Use the Super Lawyers directory to find the top bankruptcy attorneys near you to protect your rights and finances.

Find a lawyer today

Advantages of Subchapter V

Here are some of the advantages of Subchapter V cases, according to Bird:

1. There are no quarterly U.S. trustee fees.
2. There’s no unsecured creditor committee. This is important because the debtor has to pay for committee counsel and that drives up the bankruptcy fees.
3. No absolute priority rule. This means equity holders can retain their equity in the company without infusing new capital.
4. A plan can be confirmed without acceptance by creditors, so long as the debtor is contributing its maximum disposable income to the plan for 3-5 years and creditors are treated equitably in the plan.
5. A plan will be consensual (all creditors agree to it) or nonconsensual. If a plan is consensual, the debtor receives its discharge upon confirmation. If the plan is nonconsensual, the debtor receives its discharge upon plan completion of plan payments.

Know the Requirements for Using Subchapter V

A few stipulations: “The debtor cannot be a single asset real estate company. The debtors, if individuals, must be engaged in business. And the majority of the debts must be from that business,” Bird says.

Finally, for Subchapter V cases filed on or after June 21, 2024, the debt limit is $3,024,725 as adjusted.

Visit the Super Lawyers directory to find an experienced bankruptcy lawyer for advice on whether Subchapter V is right for you.