How to File Bankruptcy for a Small Business: 7 Steps in a Subchapter V Case

Subchapter V is the part of Chapter 11 written for companies too small to afford the rest of it, and filing bankruptcy for a small business through it follows a schedule tighter than most owners expect. The statute fixes a status conference within 60 days and a plan within 90, both measured from the order for relief. Those numbers organize everything else.

The seven steps below trace a Subchapter V case from the eligibility question to confirmation. They describe the procedure; the strategy inside each step belongs to bankruptcy counsel, whom a business organized as an LLC or corporation is required to retain.

1. Eligibility Is Measured Against the Statute, Not the Label

A business qualifies for Subchapter V by meeting the definition of a "small business debtor" in 11 U.S.C. 101(51D). The definition requires a person engaged in commercial or business activities whose aggregate noncontingent, liquidated secured and unsecured debts on the petition date do not exceed $3,424,000 (effective April 1, 2025), excluding debts owed to affiliates or insiders, with not less than 50 percent of those debts arising from the business's own commercial activities. A company whose primary activity is owning single asset real estate is excluded.

Section 101(51D)(B) removes three more categories: a member of a group of affiliated debtors whose combined debts exceed the limit, a corporation subject to SEC reporting under section 13 or 15(d) of the Securities Exchange Act, and any affiliate of such a corporation. Most eligibility disputes turn on arithmetic, though not all of them do.

Until June 21, 2024, a temporary ceiling of $7.5 million applied, and older articles still cite it. It lapsed. Congress has since considered restoring a higher figure through the Bankruptcy Threshold Adjustment Act of 2026, and the Senate and House passed separate versions, but no version had been enacted as of late September 2026. The number should be confirmed with counsel on the day the petition is prepared.

The words "noncontingent" and "liquidated" carry real weight in that calculation. A disputed merchant cash advance balance may or may not count, depending on how a court characterizes it, and an owner should not assume a debt drops out of the total because the owner disputes it.

2. The Election Is Made on the Petition

Subchapter V applies only when a qualifying debtor elects it, under 11 U.S.C. 103(i). The election is a box in item 8 of Official Form 201: "The debtor is a small business debtor as defined in 11 U.S.C. § 101(51D), and it chooses to proceed under Subchapter V of Chapter 11." Bankruptcy Rule 1020(a) requires the petition to state whether the debtor is a small business debtor and whether it elects the subchapter, and the case proceeds on that statement unless the court finds it incorrect. The U.S. trustee or a party in interest may object within 30 days after the meeting of creditors concludes.

3. The Financial Statements Travel With the Petition

Section 1187(a) requires an electing debtor to file the documents described in section 1116(1): its most recent balance sheet, statement of operations, cash flow statement, and federal income tax return. A company that has never prepared one of them files a statement under penalty of perjury saying so. Owners who keep their books in a shoebox and their taxes on extension discover in this step how much of the case depends on documents prepared long before anyone imagined a courtroom.

4. The Subchapter V Trustee Sits Between the Company and Its Creditors

A trustee is appointed in every Subchapter V case, either a standing trustee or one disinterested person the U.S. trustee selects, but the owner keeps running the business. Section 1184 gives the debtor in possession the powers and duties of a trustee, "including operating the business of the debtor." The Subchapter V trustee's role, under section 1183(b), includes appearing at the status conference and at hearings on valuation, confirmation, modification, and asset sales, and helping the parties arrive at a consensual plan of reorganization, which the statute lists among the trustee's duties.

The whole subchapter rests on a wager that a small company and its creditors will reach agreement more often when someone neutral stands between them.

Several expensive features of ordinary Chapter 11 fall away. Unless the court orders otherwise, there is ordinarily no creditors' committee and no separate disclosure statement, and Subchapter V cases are exempt from the quarterly fees the U.S. Trustee Program collects in other Chapter 11 cases.

5. The Status Conference Arrives Within 60 Days

Section 1188(a) requires the court to hold a status conference no later than 60 days after the order for relief, extendable only for circumstances "for which the debtor should not justly be held accountable." At least 14 days before it, the debtor files a report describing its efforts "to attain a consensual plan." The report is short. What it describes is not.

6. The Plan Is Due Within 90 Days, and Only the Debtor May File It

Under section 1189, "only the debtor may file a plan under this subchapter," and it must do so no later than 90 days after the order for relief, subject to the same narrow extension standard. Section 1190 prescribes three contents a plan must carry: "a brief history of the business operations of the debtor," "a liquidation analysis," and "projections with respect to the ability of the debtor to make payments" under the plan.

Ninety days is roughly one quarter of the company's financial life, recorded, analyzed, and projected three years forward.

The liquidation analysis estimates what creditors would receive if the business were closed and sold. The projections show what the business can pay from future income. Creditors compare the two, and so does the court.

You write the plan the way you would explain the business to a stranger who is owed money by it.

7. Confirmation Can Proceed Without Every Creditor's Consent

A consensual plan is confirmed under section 1191(a) when it meets the ordinary Chapter 11 requirements, less one. If impaired classes reject it, the court may still confirm under section 1191(b) if the plan "does not discriminate unfairly, and is fair and equitable" as to each dissenting impaired class. Fairness, for this purpose, requires that all of the debtor's projected disposable income for three years, or a longer period of up to five that the court fixes, be applied to plan payments, or that property of equivalent value be distributed, along with a showing that the debtor will be able to make the payments or that there is a reasonable likelihood it will and appropriate remedies if it does not. Disposable income excludes amounts reasonably necessary for the continuation, preservation, or operation of the business.

Because section 1181(a) makes section 1129(b) inapplicable, the absolute priority rule of ordinary Chapter 11 does not govern a Subchapter V cramdown, and the owners can keep their equity without paying dissenting unsecured creditors in full. The price of that feature is the disposable income commitment and, after a nonconsensual confirmation, a discharge postponed until the plan payments due in the commitment period have been made.

Whether a Negotiated Route Should Come First

A Subchapter V plan can bind creditors who vote against it. A private settlement binds only those who sign. That difference decides many cases before any other factor is weighed. Delancey Street is not a law firm and does not file Subchapter V cases; as a debt settlement company, it offers a free, confidential initial review of whether a company's advance, loan, and vendor balances can be resolved by agreement, and it relies on independently licensed counsel for anything requiring legal judgment. A small business that needs to bind a holdout creditor, or that faces a sale or levy date, should be with bankruptcy counsel instead.

The subchapter's wager on consensus is also the wager behind every negotiation. The difference is who sits in the middle.