What Happens if a Debtor Fails to Meet the Requirements of Subchapter V of Chapter 11 Bankruptcy?
Subchapter V of Chapter 11 bankruptcy is meant to provide small businesses with a more efficient and streamlined process of eliminating debts.
Subchapter V was created as part of the Small Business Reorganization Act of 2019. This option is meant to help small businesses restructure their debts in a cost-effective manner. The complex procedures of traditional Chapter 11 cases, such as creditor voting and consensual repayment plans, are eliminated in Subchapter V.
Although Subchapter V may be easier and more cost-effective for borrowers, there are still certain requirements that must be met. If you fail to meet these requirements, you may face many consequences. The specific consequences depend on the nature of the failure, such as if you missed a deadline or failed to comply with court orders.
Consequences of Failing to Meet Requirements Before Plan Confirmation
Borrowers must meet many requirements before the plan is confirmed. Failing to meet any of these can result in certain consequences. These include:
- Failing to file the plan on time: Borrowers in Subchapter V must file their reorganization plan within 90 days from initially filing the bankruptcy petition. Failing to file a plan within this time, or filing a plan that is unreasonably deficient, can result in a case dismissal or conversion to Chapter 7 bankruptcy.
- Failing to file monthly operating reports: Borrowers must also provide important financial information in monthly operating reports. If these reports are not filed in a timely manner, the bankruptcy trustee may file a motion to convert or dismiss the case.
- Borrower misconduct: If the borrower engages in deliberate misconduct such as neglecting insurance maintenance or intentionally disregarding court orders, the trustee can take over management of the business, removing the borrower as ‘debtor-in-possession’ (DIP).
- Failing to meet procedural requirements: If a creditor can successfully show that a borrower was not eligible for Subchapter V, such as if they exceeded the debt limit, the case may be converted to a traditional Chapter 11 case.
Consequences of Failing to Meet Requirements After Plan Confirmation
Even after a Subchapter V plan has been confirmed, there are still certain requirements borrowers must meet, and consequences for failing to do so. The plan itself usually outlines specific remedies for creditors, which may include the following:
- Requiring the sale of non-exempt assets
- Vesting property in a liquidation trust administered by the Subchapter V trustee
- Converting the case to Chapter 7
- Removing the debtor as DIP
Our Bankruptcy Lawyer in Florida Can Help with Your Case
At Brian K. McMahon, P.A., our Florida bankruptcy lawyer can help you through the Subchapter V process and ensure all requirements are met so you obtain the best possible outcome and avoid any negative consequences. Call us today at 561-658-1789 or fill out our online form to schedule a free consultation with our experienced attorney and to get the legal help you need.