***Update*** Understanding Small Business Bankruptcy under Subchapter V

Updated June 21, 2022

After the increased debt limit expired on March 27, 2022, the House and Senate by wide majorities passed a bipartisan bill known as the Bankruptcy Threshold and Technical Corrections Act.  One of the provisions of this Act will extend the increase in the debt limit of $7,500,000 in Subchapter V cases for two more years.  The legislation also amended the definition of a “small business debtor” to include a debtor that is an affiliate of some publicly traded companies to correct a technical flaw in the CARES Act that initially excluded such businesses.

Subchapter V has proved to be popular with businesses. A review of filings over the last two years indicates that the vast majority of chapter 11 reorganization cases were filed under Subchapter V.

The bill has been sent to President Biden, and he is expected to sign the Act into law shortly.

NSSH will continue to monitor developments and provide updates as this situation develops.


Chapter 11 bankruptcy gives business owners an opportunity to restructure and reorganize their debt while continuing to operate.  The downside is the considerable expense and time required to comply with numerous reporting requirements.

In 2019, Congress enacted legislation giving some businesses the option to elect a new subchapter V of Chapter 11 of the bankruptcy code.  Subchapter V retains many of the advantages of a traditional chapter 11 case without many of the associated procedural costs and burdens.  To qualify for subchapter V, business debt – secured and unsecured – must be $7,500,000 or less.  At least half of that amount must result from business activity. That figure will change soon, and more about that later.

A business in a subchapter V case files a reorganization plan outlining a plan to repay its creditors.  This differs from a traditional chapter 11 in which the creditors may force their plan on the business.  The plan must be filed within ninety days of filing, but it gives the business considerably more control over its reorganization than previously.

Another significant difference between subchapter V and Chapter 11 affects how the case is administered.  In Chapter 11 cases, a creditors committee is appointed to represent the interests of unsecured creditors.  The committee may hire accountants, lawyers, and other professionals to assist it at the debtor’s expense which can substantially raise the cost to a business that is attempting to reorganize itself.  Subchapter V eliminates the creditors committee and its associated expense. Also abolished are the mandatory quarterly fees that must be paid to the US Trustee in chapter 11 cases.

Subchapter V permits a business to spread out repayment of its debts over a three-to-five-year period and unlike the previous version of chapter 11, the repayment plan can be confirmed without creditor approval so long as the plan does not discriminate unfairly among creditors, is fair and equitable with respect to each class of claims or interests and provides that all projected disposable income of the debtor is paid into the plan over the length of the plan.

If a business owner pledged or guaranteed personal assets to secure business debt (a common situation) the loan agreement can be modified to protect the owner’s personal assets.

Another feature of subchapter V cases is the quicker pace at which they move compared to Chapter 11.  Part of this is due to the reduced reporting burdens and fewer opportunities for creditors to meddle in the confirmation process and some of it also has to do with Congress’ intent to make this type of case more streamlined.

Here we have presented some of the provisions in subchapter V that may help business owners reorganize – but be forewarned – the legislation that permitted the increased debt limit eligibility for subchapter V will, in the government’s terminology, “sundown” or expire on March 27, 2022.  After that date, the debt limit will decrease to $2,725,625 which was the pre-pandemic level.

The attorneys at Nauman Smith Shissler & Hall LLP can review your business’s entire financial situation and determine whether a subchapter V case would be the best option.

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