How Does Subchapter V Affect Secured Creditors?

Secured creditors may find it more difficult to recover debt owed to them in Subchapter V than in a traditional Chapter 11 bankruptcy case.

For small business debtors, Subchapter V provides many benefits over a traditional Chapter 11 bankruptcy, including how secured creditors are handled. While this is good news for borrowers, it can make it more difficult for creditors. Subchapter V impacts secured creditors by offering a streamlined process that changes the standard protections in other Chapter 11 cases. A secured creditor’s rights to the collateral are typically still in place, but the process is faster and does not require a creditors’ committee.

How Does Subchapter V Impact Secured Creditors?

There are many ways Subchapter V impacts secured creditors. These include:

• Collateral: While Subchapter V can create challenges for secured creditors, it also has benefits. One of the biggest benefits for creditors is that they still retain the right to the collateral the debt is tied to, unless the debtors can include the debt in the reorganization plan and successfully maintain payments.
• No creditor committee: Unlike traditional Chapter 11 cases, Subchapter V does not require a creditor committee, meaning that secured creditors do not have as much leverage to negotiate with the debtor. Still, when there is cause, the court may appoint a creditor committee.
• Streamlined process: Subchapter V is a faster process than traditional Chapter 11 cases. This can be an advantage or a drawback for secured creditors, depending on their position.
• No absolute priority rule: Subchapter V does not include the absolute priority rule that exists in traditional Chapter 11 cases. This means business owners can retain an interest in their company even if they are unable to repay creditors in full.

How Can Secured Creditors Protect Themselves?

Secured creditors may not have as much negotiating leverage in Subchapter V cases, and so, it is important that they protect themselves as much as possible. Secured creditors should closely monitor the bankruptcy case to remain informed about its progress. It is also important for secured creditors to act quickly to ensure that the borrower is making payments on time and that their security interest is protected during the reorganization process.

Just as debtors should always work with a bankruptcy lawyer, it is just as important for secured creditors to have an attorney on their side, as well. An attorney can advise on how to protect your interests and advise on the next steps to take.

Our Bankruptcy Lawyer in South Florida Can Help

Whether you are a small business owner considering Subchapter V or you are a secured creditor concerned about recovering your debt, you need legal help. At Brian K. McMahon, P.A., our South Florida bankruptcy lawyer can provide the advice you need, help you through the process, and ensure that you obtain the most favorable outcome possible. Call us now at 561-658-1789 or fill out our online form to schedule a consultation and to learn more about how we can help with your case.