What is Subchapter V of Chapter 11 Bankruptcy?
Subchapter V of Chapter 11 bankruptcy is often a better alternative to traditional Chapter 11 bankruptcy for small business owners.
Subchapter V of Chapter 11 bankruptcy is a powerful tool that greatly helps small businesses. Traditional Chapter 11 bankruptcy was established in 1978 under the Bankruptcy Reform Act to help businesses of all sizes. Over the years, however, the decisions of bankruptcy courts in these cases have led to changes in traditional Chapter 11. While this type of bankruptcy may be appropriate for major corporations such as United Airlines and Johnson & Johnson today, it is not as practical for small businesses. On the other hand, Subchapter V of Chapter 11 can be more helpful.
What is Subchapter V of Chapter 11 Bankruptcy?
Subchapter V of Chapter 11 bankruptcy offers a streamlined and more affordable reorganization process that is specifically designed for small businesses in Florida and throughout the country. Subchapter V was established by the Small Business Reorganization Act of 2019. Subchapter V became effective on February 19, 2020, and due to its recent enactment, there is limited case law that interprets its provisions.
How Does Subchapter V of Bankruptcy Work?
Small business borrowers in Subchapter V can reorganize and repay their debt over three to five years. During this time, business owners can continue operating their company.
The reorganization plan outlining how the business owner will repay their debts is at the core of Subchapter V. Borrowers must file this plan within 90 days of filing bankruptcy. If there are extenuating circumstances beyond the borrower’s control, this time limit may be extended. The plan also requires the business to commit all of its disposable income throughout the entirety of the reorganization plan.
The reorganization plans in Subchapter V do not require approval from creditors if a court determines that they are fair and equitable. There is also no absolute priority rule. In traditional Chapter 11 cases, the absolute priority rule prohibited business owners from keeping their ownership interest unless they paid all of their unsecured creditors in full. This allows business owners to retain their ownership interests as long as they are able to commit their disposable income to the reorganization plan.
Once a borrower has completed the plan, the court will discharge any remaining debts that were not paid over the previous three to five years.
Our Bankruptcy Lawyer in West Palm Beach Can Help You Through the Process
Subchapter V of Chapter 11 bankruptcy has many benefits for small business owners. Still, going through the bankruptcy process alone can result in mistakes that can negatively impact your case. At Brian K. McMahon, P.A., our West Palm Beach bankruptcy lawyer can help. Our experienced attorney can guide you through the process, answer your questions, ensure no mistakes are made, and help you obtain the best possible outcome. Call us today at (561) 658-1789 or complete our online form to schedule a complimentary review of your case with our experienced attorney and learn more about how we can assist you.