Business Bankruptcy in Austin: 5 Facts About the Western District of Texas

On April 6, 2022, a Texas commercial cleaning company agreed to take $190,000 from a funder "in exchange for $299,800 of GFS's future receivables," and fifteen days later it filed chapter 11 and elected Subchapter V. The fight that followed began in a bankruptcy court of the Western District of Texas and ended, for now, in the Fifth Circuit, which in 2024 changed what a company in Austin can expect a Subchapter V discharge to do.

That case is one of five facts that shape business bankruptcy in Austin. The rest are about geography, offices, and a set of Subchapter V procedures the Western District wrote for itself, the most exacting of which reaches a debtor before its first hearing.

1. Seventeen Counties Answer to San Jacinto Boulevard

28 U.S.C. 124(d) gives the Western District of Texas seven divisions: Austin, Waco, El Paso, San Antonio, Del Rio, Pecos, and Midland-Odessa. The Austin Division takes in Bastrop, Blanco, Burleson, Burnet, Caldwell, Gillespie, Hays, Kimble, Lampasas, Lee, Llano, Mason, McCulloch, San Saba, Travis, Washington, and Williamson counties, so a company in Round Rock, San Marcos, or Fredericksburg files in Austin.

The bankruptcy court sits in the Homer J. Thornberry Federal Judicial Building, 903 San Jacinto Boulevard, Suite 322. The U.S. Trustee's Austin field office, under Assistant U.S. Trustee Gary Wright, is in the same building, Room 230; it belongs to Region 7, whose regional office is in Houston.

2. The Western District Asks for a Budget and a Lien Search Almost at Once

The court's Subchapter V procedures, Appendix L-1020.2-1 to its local rules, took effect February 3, 2025. Their deadlines belong to this district alone, and a lawyer whose Subchapter V practice was learned elsewhere should read them before assuming anything.

First, "Within fourteen days after the Petition Date, any nonindividual debtor who has not filed a Motion to Use Cash Collateral shall file a Notice of Preliminary Budget," which must include "a detailed ninety day budget" on the court's Appendix SubV-1. A company that has not yet asked to use cash collateral still owes the court its numbers in two weeks.

Second, and more pointed for a business that owes merchant cash advances: "Simultaneously with the filing of any motion to use cash collateral and/or motion for debtor-in-possession financing, the debtor shall file with the Court a UCC Lien Search conducted within ten days prior to the Petition date." It is common for funders to file UCC financing statements against a merchant's receivables. The lien search puts every one of them on the docket at the start, which means that the court and the Subchapter V trustee will know which funders claim to be secured, and against what, before those funders have filed a single proof of claim.

The requirement works the way a hardware store's key-duplicating log works in a building where the locks are about to be changed: nobody consults it until the day it becomes the only record of who might still have access. A debtor that has stacked four or five advances, some of them with filings it never read, learns from its own lien search what its creditors have been asserting all along (and learns it on a ten-day clock that starts running before the petition, which makes the search part of the preparation for filing rather than something counsel orders after the case is open).

The procedures continue from there. For interim use of cash collateral the debtor "must introduce a detailed, line-item budget/cash flow projection" on a weekly basis. "At least five days prior to the final hearing," it files a monthly budget covering "not less than one hundred twenty days" and a proposed final order with a redline. It files a Subchapter V Case Status Report on Appendix SubV-2, and the court posts a form plan and form orders for both consensual and non-consensual confirmation.

None of this is optional in Austin.

3. Complex Treatment Turns on Factors, Not a Single Number

The Western District's complex chapter 11 procedures, Appendix L-1020.1-1, also effective February 3, 2025, weigh "the size of the case (usually total debt of more than $10 million)," the number of parties in interest, publicly traded claims or interests, and "any other circumstances justifying complex case treatment." The word "usually" is doing quiet work there. The appendices include a form for emergency consideration of first-day matters and a checklist for long cash collateral and financing orders.

4. The Fifth Circuit Let a Funder Challenge a Company's Subchapter V Discharge

Back to GFS. The funder, Avion, sued in the bankruptcy case, alleging that GFS obtained the advance by misrepresenting that it did not anticipate filing for bankruptcy, and sought to have the debt declared nondischargeable under section 523(a)(2)(B). The bankruptcy court dismissed the claim, holding that only individuals, not corporations, can face section 523(a) dischargeability actions in Subchapter V. The Fifth Circuit reversed on April 17, 2024: "in Subchapter V proceedings, both corporate and individual debtors are subject to the list of § 523(a) discharge exceptions." It joined the Fourth Circuit's 2022 decision in Cleary Packaging. Other courts, including a Ninth Circuit bankruptcy appellate panel in 2023, have read the statute the other way.

The decision did not find that GFS committed fraud; it sent the case back. But for a Texas company its lesson sits in the funding agreement itself. A representation about bankruptcy plans, signed two weeks before a petition, can become the basis of a claim that survives the discharge.

5. In the Fifth Circuit, a Consensual Plan Carries Extra Weight

The GFS rule reaches only a Subchapter V plan confirmed without creditor consent under section 1191(b), because the discharge after such a plan comes through section 1192, and section 1192 excepts debts "of the kind specified in section 523(a)." A plan confirmed consensually under section 1191(a) discharges through the ordinary chapter 11 provision instead. For an Austin debtor with a funder that might allege misrepresentation, the difference between a plan the creditors accept and a plan imposed on them is therefore larger than it looks on the court's form orders, and counsel will weigh it early.

Texas law outside the courtroom supplies two further facts. A Texas homestead is measured by acreage under Property Code 41.002, ten acres in town, and belongs to the owner, not the LLC. And Finance Code Chapter 398, effective September 1, 2025, voids confession of judgment provisions in covered sales-based financing contracts.

Where a Negotiated Result Still Fits

A company that needs the stay, the lien search, and the court's supervision should retain an Austin business bankruptcy attorney; no settlement conversation substitutes for that. For companies still weighing the question, Delancey Street reviews merchant cash advances and the business debt around them, free of charge and in confidence, looking for a negotiated resolution short of filing. It is not a law firm. It files no petitions, appears in no court, gives no legal advice, and works with independently licensed counsel when legal work is needed; it has no Austin office. A review cannot promise that a funder will agree to anything, and a funder that believes it was misled about bankruptcy plans may be the least willing of all.