How Does Subchapter V Differ From Traditional Chapter 11 Bankruptcy?
As its name suggests, Subchapter V is a new addition to Chapter 11 bankruptcy. So, what is the difference between the two? Our West Palm Beach bankruptcy lawyer explains.
If you are a business owner struggling with debt, you may have already considered bankruptcy as an option. For business owners, the two most common types to file are Subchapter V and traditional Chapter 11 bankruptcy. Both of these options offer unique advantages and drawbacks. It is critical that you understand what these are so that you can consider your own situation and which route is best for you.
Subchapter V vs Traditional Chapter 11 Bankruptcy
Subchapter V provides a more streamlined approach to Chapter 11 bankruptcy. This subchapter was introduced as part of the Small Business Reorganization Act in 2019. The purpose of Subchapter V is to make the bankruptcy process easier, more accessible, and cost-effective for small business owners by providing them with a simpler process. Subchapter V is particularly beneficial for small business owners with debts below a specific limit and provides more focus on small business owners.
A traditional Chapter 11 bankruptcy, on the other hand, allows businesses of any size to reorganize their debts while still continuing to operate their business. Although this option also includes some flexibility, it is usually more beneficial for larger companies with substantial debts.
Differences in Eligibility Criteria
One of the main differences between Subchapter V and traditional Chapter 11 is the eligibility requirements. Today, only borrowers carrying a maximum of $3,424,000 in debt are eligible to file Subchapter V. Traditional Chapter 11 bankruptcy does not have a debt ceiling requirement, which makes it more appropriate for larger businesses or those with financial structures that are more complicated.
Differences in Administrative Requirements and Fees
In traditional Chapter 11 bankruptcy cases, there is a requirement for the appointment of a creditors’ committee. The committee must approve the reorganization plan, and if they do not, it can create unnecessary delays. In most Subchapter V cases, there is no committee formed. As long as the court finds the business owner’s proposed reorganization plan is fair and equitable, it will approve it.
Differences in Timelines
Traditional Chapter 11 bankruptcy cases can take a long time to resolve. Sometimes, even years. Subchapter V bankruptcy, on the other hand, allows for much faster resolutions, allowing business owners to put the process behind them and focus on running their company instead.
Our Bankruptcy Lawyer in West Palm Beach Can Help with Your Case
If you are a business owner struggling with debt, it is important to know that you have options. At Brian K. McMahon, P.A., our West Palm Beach bankruptcy lawyer can explain what they are, help you determine which one is right for you, and guide you through the process so you obtain the best result possible. Call us now at 561-658-1789 or fill out our online form to schedule a free consultation and to get the legal help you need.