Effective in February of 2020, the Small Business Reorganization Act (the “SBRA”) was created by Congress to provide small business owners with a more streamlined version of Chapter 11 bankruptcy. I have nearly 10 years of experience helping clients in White Plains and the surrounding areas overcome financial adversity, and I know how to help your small business regain control over its financial well-being. I have helped small businesses in a wide variety of industries (e.g., real estate, health care, tech, software, transportation, and more), I can apply a thoughtful and meticulous approach to your unique financial situation and business model.
Ready to learn more about how the SBRA can help you with a Chapter 11 bankruptcy filing?
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Benefits of Chapter 11 Under the SBRA
Prior to the enactment of the SBRA, the Chapter 11 process could be extremely complex and overwhelming for small businesses, involving stringent standards, approval requirements by creditors, monthly reporting, and more. The SBRA added Subchapter V to Chapter 11 bankruptcy to combat some of the cumbersome requirements of a traditional chapter 11 bankruptcy and give small businesses a more straightforward opportunity to successfully reorganize. For example, Subchapter V is exclusively available to small businesses with less than $2,725,625 of debt (at least 50% of which was accrued through commercial activities). The debt threshold for Subchapter V helps small businesses expedite the reorganization process and reduce the costs.
The SBRA provides certain benefits to small business debtors, including:
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Allowing equity holders to retain an interest in the business without paying creditors in full
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Extending the time for debtors to pay administrative claims
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Allowing the confirmation of a plan without creditor consent
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Allowing the small business debtor to be the only one who can create a reorganization plan
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Eliminating the requirement of a creditors’ committee (which is usually costly and time-consuming)
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Providing the small business with a trustee whose main task is to ensure the development of a successful reorganization plan (rather than selling as many assets as possible)
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Eliminating the “absolute priority” rule, which allowed plans to be denied unless unsecured creditors agreed to be paid less than what was owed
I urge you to take advantage of our free initial consultation so you can learn more about how the new law could allow you to reorganize and repay your debts under Chapter 11.
Frequently Asked Questions
What is the short answer on Subchapter V bankruptcy?
Subchapter V is a streamlined form of Chapter 11 designed for eligible small-business debtors that want to reorganize while continuing operations. It reduces several procedural barriers found in traditional Chapter 11 but still requires detailed records, a feasible plan, court supervision, and ongoing compliance.
Is the Small Business Reorganization Act the same as Subchapter V?
The Small Business Reorganization Act created Subchapter V within Chapter 11. A debtor files a Chapter 11 case and elects treatment under Subchapter V if the eligibility requirements are met.
Who qualifies as a Subchapter V debtor?
Generally, an eligible person or entity must be engaged in commercial or business activity, have qualifying aggregate debts within the statutory limit, and have at least 50% of those debts arise from commercial or business activity. A debtor whose primary activity is a single-asset real-estate operation is generally excluded.
What is the current Subchapter V debt limit?
For cases filed on or after April 1, 2025, the statutory small-business debt ceiling is generally $3,424,000 in aggregate noncontingent, liquidated secured and unsecured debt, subject to the exclusions and business-debt requirements in the Bankruptcy Code. The amount adjusts periodically and should be verified before filing or publishing a numeric answer.
Can the owner keep running the business in Subchapter V?
Usually. The debtor typically remains in possession and continues ordinary-course operations while fulfilling fiduciary, reporting, insurance, tax, and court obligations. A trustee can be authorized to operate the business if the debtor is removed for cause.
Is a trustee appointed in Subchapter V?
Yes. A Subchapter V trustee is appointed in every case to facilitate development of a consensual plan, monitor the case, and perform statutory duties. The debtor normally remains in control unless the court orders otherwise.
How quickly does a Subchapter V case begin moving?
The court generally holds a status conference within 60 days after filing, and the debtor must submit a report at least 14 days before that conference describing efforts and prospects for a consensual plan. These deadlines make pre-filing preparation especially important.
When is the Subchapter V plan due?
The debtor generally must file the plan within 90 days after the order for relief, unless the court extends the deadline because circumstances for which the debtor should not justly be held accountable require more time.
Can a creditor file a competing Subchapter V plan?
No. Only the debtor may file a plan in a Subchapter V case. This exclusivity is one of the features intended to give an eligible small business a more focused opportunity to reorganize.
Is a creditors' committee appointed in Subchapter V?
Ordinarily no, unless the court orders otherwise for cause. Avoiding a committee can reduce cost and complexity compared with a traditional Chapter 11 case.
Is a disclosure statement required in Subchapter V?
Usually not. The plan itself must contain specified information about the debtor, liquidation analysis, and ability to make plan payments, and the court may order otherwise if additional disclosure is needed.
Does the absolute priority rule apply in Subchapter V?
The traditional absolute priority rule does not operate the same way in Subchapter V. An owner may be able to retain equity without paying unsecured creditors in full if the plan satisfies Subchapter V's nonconsensual confirmation requirements.