Can the Debtor Retain Assets Under Subchapter V of Chapter 11?
People often worry that they will lose a significant amount of property when filing for bankruptcy. This does not happen in Subchapter V.
Bankruptcy provides individuals with an opportunity to discharge or repay their debts in a manner that is affordable and stretches over many years. While bankruptcy can help people get their finances in order, there is often a concern that the borrower will lose their assets as part of the process. Although this does occur in some cases, it does not happen in Subchapter V of Chapter 11.
Important Differences in Subchapter V
Like in other Chapter 11 cases, debtors typically retain assets under Subchapter V. However, there are some key differences. These include:
- No absolute priority rule: The absolute priority rule in traditional Chapter 11 cases requires unsecured creditors to be paid in full before existing equity holders, such as shareholders, can retain their ownership in the business. This rule is eliminated in Subchapter V, allowing existing owners to retain their equity as long as the court finds the reorganization plan to be fair and equitable to creditors.
- No requirement for creditor voting: Borrowers can confirm Subchapter V reorganization plans without the consent of any creditor classes. This is known as a cramdown. However, the court must find that the repayment plan is reasonable, feasible, and fair. This significantly increases the likelihood of a successful restructuring for small business owners.
- A streamlined process: Subchapter V is meant to be a quicker and more affordable process for small business debtors. There are shorter deadlines, and the process does not require a separate disclosure statement. In some cases, the court may still order a disclosure statement, but this is rare.
Conditions for Retaining Assets in Subchapter V
To retain assets and equity in the business under a cramdown plan, the reorganization plan must be confirmed or approved by the court. A bankruptcy judge must confirm that the plan is fair and equitable. This means that the plan must commit all of the borrower’s projected disposable income to the plan for a period of three to five years. The plan must also be fair and equitable in some capacity to all classes of creditors.
Subchapter V is meant to help small business owners reorganize and protect jobs while retaining interest in their company, even if creditors are not repaid the entire debt they are owed.
Call Our Bankruptcy Lawyer in South Florida Today
If you are a small business owner struggling with debt, it is critical that you work with a South Florida bankruptcy lawyer. At Brian K. McMahon, P.A., our experienced attorney can advise you of your options and provide sound legal advice throughout the process so you can make informed decisions and obtain the best possible outcome. Call us now at 561-658-1789 or fill out our online form to schedule a consultation with our seasoned attorney and to get the help you need.