Texas Small Business Bankruptcy: The Subchapter V Gamble

 Posted on October 03, 2025 in Bankruptcy

Subchapter V of Chapter 11 bankruptcy was created by Congress in 2019 under the Small Business Reorganization Act and was intended to be a lifeline for struggling small businesses. Texas entrepreneurs facing alarming levels of rising debt turned to Subchapter V as a less expensive way to reorganize debt while keeping the doors open. But is Subchapter V always the best choice? 

Depending on the circumstances, Subchapter V could potentially expose business owners to unexpected risks or trap them in overwhelming repayment obligations. It is important that you understand this relatively new option by carefully assessing the benefits and drawbacks of Subchapter V. The best way to accomplish this is to speak to an experienced Brazoria, TX bankruptcy attorney who can comprehensively review your situation and help you determine your best path forward for financial relief.  

What is Subchapter V of Chapter 11 Bankruptcy?

Initially, the debt limit for Subchapter V under Chapter 11 bankruptcy was approximately $2.75 million, but the CARES Act temporarily increased this limit to $7.5 million until the expiration in June 2024.  Subchapter V is designed to provide a simplified, cost-effective option for small businesses in Chapter 11 bankruptcy. Traditional Chapter 11 bankruptcy is typically more complex and costly, but can be used by a broader range of debtors. Some features of Subchapter V versus Chapter 11 include:

• Subchapter V automatically involves a trustee to monitor progress, finances, and help facilitate a workable plan. Unless a debtor acts improperly, there is no trustee in Chapter 11.
• Chapter 11 cases involve a committee to represent creditors’ interests, while Subchapter V does not.
• Chapter 11 requires a disclosure statement that includes comprehensive business and financial information, while Subchapter V does not.  
• To demonstrate feasibility, Subchapter V plans must provide details on the business’s history, a liquidation analysis, and projections of future disposable income.
• A common feature of Chapter 11 bankruptcy cases is the absolute priority rule, which requires that higher-priority claims be paid in full before lower-priority claims receive any payment. Subchapter V eliminates this rule.
• The process of Subchapter V is generally faster, simpler, and less expensive than Chapter 11.

Under Subchapter V, debtors maintain control of their business without a creditors’ committee, and without the absolute priority rule, business owners can retain equity. If the plan is fair and feasible, a streamlined plan confirmation process and reduced legal fees are available. Although it may sound like a perfect solution, there can be unintended results.

Is There a Downside to Subchapter V?

In some cases, filing for Subchapter V can become a financial trap for struggling business owners. There are strict deadlines, making it difficult for a business to file a workable plan within 90 days, and repayment plans can potentially tie up future income for years.

There is increased monitoring by Subchapter V trustees; although the trustee’s role is to facilitate a plan, they also closely monitor business operations and finances. In some cases, secured creditors may push back against reorganization terms. Most importantly, business owners who misunderstand personal guarantees or community property issues can put their business at risk.

Contact a Liberty County, TX Business Bankruptcy Lawyer

It is important to consult with a business bankruptcy lawyer early on in the process. Your attorney can evaluate your creditor relationships, debt load, and the long-term viability of your business before tailoring a strategy that meets your needs while adhering to Texas law and federal bankruptcy rules. When you choose a highly skilled Brazoria, TX Subchapter V bankruptcy attorney from The Fealy Law Firm, PC, you can have full confidence in the outcome of your bankruptcy filing.

Subchapter V bankruptcy can be a lifeline for your business, but it may not be the right choice for everyone. Attorney Fealy is a board-certified bankruptcy attorney and a member of many professional bankruptcy associations. Her focus is on helping good people through hard times, so if you are considering bankruptcy, call 713-526-5220 to schedule your free consultation.