Streamlined Solutions for Small Businesses
In a challenging economy, Bankruptcy offers various solutions to help individuals and businesses regain their financial footing. At Business Law Group, we exclusively specialize in Chapter 11 Subchapter 5 bankruptcy. Chapter 11 Subchapter 5, introduced by the Small Business Reorganization Act of 2019, is a streamlined version of traditional Chapter 11 bankruptcy. This option is tailored for small businesses with debts under a certain threshold, providing a more straightforward and cost-effective path to reorganization.
What is Subchapter V Small Business Restructuring Bankruptcy?
Chapter 11 Subchapter V is an offshoot of the typical Chapter 11 “reorganization” bankruptcy. Historically, Chapter 11 bankruptcy was regarded as the most difficult and expensive bankruptcy, as it was geared towards large corporations and endless pockets. To address the need for a small business reorganization bankruptcy option, in 2019, Congress introduced the Small Business Reorganization Act (SBRA) as Subchapter V into Chapter 11 of the Bankruptcy Code to address these unique challenges. For good reason, this has become an increasingly popular option for small businesses in need of financial relief. As stated by the American Institute on Bankruptcy, subchapter V (also known as subchapter 5) small business elections have increased 78% to in June 2024 from last June. This subchapter offers a streamlined, cost-effective bankruptcy process tailored specifically for small businesses.
Key Features of Subchapter V
Subchapter V is designed to simplify and expedite the bankruptcy process for small businesses, significantly reducing the associated time and costs.
Eligibility is dependent on two key factors:
1. The business debt does not exceed $7,500,000, and
2. The debtor must be actively engaged in commercial or business activities.
Unlike traditional Chapter 11 cases, Subchapter V allows the debtor to remain in control of their business operations as a “debtor-in-possession,” unless a trustee is requested or appointed for cause.
A common misconception in Chapter 11 cases is that a Trustee does not need to be appointed. A trustee is appointed in every Subchapter V case, but not in the typical fashion associated with bankruptcy, their role is more limited compared to traditional Chapter 11 cases.
The trustee’s primary responsibilities include facilitating the development of a consensual plan of reorganization and monitoring the debtor’s progress executing the plan.
Additionally, Subchapter V cases do not require the formation of a creditors’ committee, which helps to reduce administrative costs and streamline negotiations.
One of the critical aspects of Subchapter V is the requirement for the debtor to file a plan of reorganization within 90 days of filing the bankruptcy petition, with possible extensions if necessary.
Notably, Subchapter V eliminates the absolute priority rule, allowing small business owners to retain their ownership interests even if the plan does not fully pay creditors as long as the plan offers creditors a minimum of what they would receive in Chapter 7 bankruptcy cases.
This type of bankruptcy offers an unmatched level of creditor protection than found in other types of bankruptcy cases.
Why Choose Subchapter V?
Subchapter V offers several significant benefits for small businesses facing financial distress:
- The streamlined process and the elimination of the creditors’ committee can substantially reduce legal and administrative expenses, making bankruptcy more accessible.
- The expedited timeline for plan submission and confirmation helps businesses emerge from bankruptcy more quickly, minimizing operational disruptions.
- Retaining control of business operations allows debtors to continue managing their business and implementing necessary changes during the reorganization process.
- The ability for business owners to retain their ownership stake provides a strong incentive for them to work towards a successful reorganization of the business.
- Administrative expenses under Subchapter V can be paid over the life of the plan instead of on the plan’s effective date, easing cash flow constraints for small businesses, ensuring that small businesses can manage their finances more effectively during the reorganization process.
A Vital Lifeline for Small Business Reorganization
Subchapter V of the Bankruptcy Code represents a significant advancement in bankruptcy law tailored to the needs of small businesses. By offering a more accessible, efficient, and flexible framework for reorganization, it enables small business owners to navigate financial distress, restructure their obligations, and ultimately emerge as viable entities. As small businesses are the backbone of the economy, these provisions play a crucial role in supporting economic stability and growth.
Contact Us for your Chapter 11 Subchapter 5 bankruptcies needs
Business Law Group is dedicated solely to Chapter 11 Subchapter 5 bankruptcies, bringing in-depth knowledge and specialized skills to each case. We understand that every business is unique, which is why we tailor our strategies to meet the specific needs and goals of your business. Our mission is to guide you through the bankruptcy process efficiently, helping you achieve a successful reorganization and a brighter financial future. Call today to schedule a free consultation to determine whether Chapter 11 Bankruptcy may benefit you and your business.
