What to Know About Bankruptcy Chapter 11, Subchapter V

 Posted on February 14, 2025 in Bankruptcy

Businesses facing financial distress and considering bankruptcy may file Chapter 7 bankruptcy. Another option for many businesses is Chapter 11 bankruptcy, which is commonly known as the "business bankruptcy" because it is primarily meant for businesses. It is also referred to as the "reorganization" bankruptcy because it allows businesses to reorganize their debts while staying in business.

As of 2019 Congress and the Small Business Reorganization Act (SBRA) created a third option for businesses called Chapter 11 Subchapter V, which offers a more affordable and simplified method that can be especially attractive for small businesses. An experienced Texas bankruptcy attorney advises businesses on the pros and cons of the relevant bankruptcy chapters available to businesses in financial trouble.

What is Chapter 11, Subchapter 5 Bankruptcy?

Chapter 11, Subchapter V (or Subchapter 5 as it is also called) offers a less expensive and speedier process suitable for small businesses facing significant debt. In a Subchapter 5 bankruptcy process, creditors are usually forced to accept the court’s repayment plan that businesses may pay in three to five years. To qualify for Subchapter 5, a debtor must engage in business activities and have debt of no more than just over three million dollars (which will rise to $3,424,000 starting on April 1, 2025).

What are the Pros of Chapter 11, Subchapter 5?

• Simplified process: Subchapter 5 has a shorter timeline and fewer administrative requirements than Chapter 11. For example, in Subchapter 5 the court approves the reorganization plan. Creditors need not approve the plan, and there are no creditors’ committees, as in Chapter 11.

• Lower cost: Subchapter 5 is cheaper. The simplified process and fewer administrative fees add up to lower costs for businesses.

• No completing plans: Unlike in Chapter 11, creditors may not submit competing reorganization plans.

• Businesses have more control: In Subchapter 5 businesses have more control over their business throughout the restructuring, although they are still subject to the trustee’s supervision.

What are the Cons of Chapter 11, Subchapter 5?

• Debt limit: Because of the lower debt limit, Subchapter 5 is not for everyone. Businesses with higher debt cannot turn to this bankruptcy method.

• Tighter timeline: While the faster timeline can be a benefit for some businesses and lead to lower costs and a quicker return to business as usual, it may be difficult for some small businesses to meet.

• Creditors can still object: Creditors may still object to the plan if they can argue that reorganization would not make them whole in the same way as selling off the business’ assets.

Call a Waller County, TX Chapter 11, Subchapter V Bankruptcy Attorney 

If your business is facing financial difficulties, you may be wondering if bankruptcy could help you get your business financials back on track. An experienced Houston, TX business bankruptcy attorney can advise you on the most appropriate method to file bankruptcy. Call attorney Vicky Fealy at 713-526-5220 for a complimentary consultation today.