Small Business Bankruptcy: 7 Features of Subchapter V That Change the Math

7 Key Features of Subchapter V

Subchapter V takes a remarkable number of steps to make it easier for small business debtors to get through the bankruptcy process. Why did Congress do it? Because lawmakers knew that bankruptcy was an unwieldy, expensive, lengthy process that small businesses had trouble utilizing. If you find a way to reorganize debt and pay down some of it as well as regularly maintain payments over a period of a few years, then you may be able to retain ownership of your business. This, in turn, means that you can keep your job and keep operating the business. Also, it may not take as long or be as complex to file for bankruptcy under these new rules. Here are 7 key features of Subchapter V that make it an attractive alternative for small business debtors.

By far, the most important and most central feature of Subchapter V is the threshold limit for qualifying debt that’s meant to apply to small businesses. The CARES Act temporarily increased the threshold to $7.5 million. That provision of the CARES Act expired on June 21, 2024. Now, the threshold for a Subchapter V debtor is $3,424,000. In addition to the threshold limit for total debt, there’s a requirement that at least 50 percent of this debt be “business debt.” Single asset real estate (SARE) debtors cannot get into Subchapter V. A bill, H.R. 7730, proposed in Congress sought to increase the threshold to $7.5 million. As of October 14, 2026, it had passed Congress but was not shown as signed into law. If signed, it would allow larger numbers of small businesses to take advantage of the benefits of the Subchapter V process.

When a business gets into Chapter 11, then there are quarterly fees due to the U.S. Trustee. A Subchapter V debtor doesn’t pay the quarterly U.S. Trustee fees that would have otherwise applied under the traditional Chapter 11 process. This frees up more money for your business to make payments and satisfy creditors. You still have to pay a filing fee: $1,167, plus a $571 administrative fee.

Generally, there’s no requirement for debtors to file a disclosure statement in Subchapter V. There’s no creditor committee, usually, unless the court orders one. Eliminating these requirements that apply in the traditional Chapter 11 process has the effect of reducing the time, expense and hassle of going through the bankruptcy process.

In every Subchapter V bankruptcy case, a trustee is appointed. This trustee plays the role of mediator between the debtor and creditors. Where they take part in discussions with the debtor, they can make it easier to work out an agreement between creditors and the debtor on payment and discharge terms.

Upon initiation of the bankruptcy case, the court is to hold a status conference within 60 days. This gets the debtor and creditors focused on trying to negotiate a resolution within a strict timeframe. At least 14 days before a status conference, the debtor is to file a report that outlines the debtor’s efforts to win creditor consent to a plan.

Only you, as the debtor, can file a plan. The requirement to do so within 90 days of filing the petition brings a degree of certainty to the process, when you’re scheduling things out for your business. You’re allowed to request more time to file a plan. To get it, you have to show that your need for more time was due to circumstances for which you should not justly be held accountable.

If creditors don’t agree, the court can still confirm your plan, as long as the plan doesn’t discriminate unfairly, and is fair and equitable. Fairness and equity in this context require that you commit all projected disposable income to the plan for three years, or up to five if the court sets a longer time. In Subchapter V, you don’t have to apply the absolute priority rule. This rule requires that some types of creditors be paid in full before others, if the debtor retains all or part of the business. In other words, you can keep your business and you can retain ownership of it without having to pay back the entire amount owed to creditors. If you make every payment the plan requires, the remaining dischargeable debt is wiped out. There are a few exceptions and requirements of course.

Traditional Chapter 11

In a traditional Chapter 11, to keep your business and ownership of it, you typically have to satisfy the absolute priority rule and pay all creditors in full. It can take several years for a traditional Chapter 11 case to wrap up. Meanwhile, the bills for quarterly fees, lawyers and advisors pile up. Generally speaking, Subchapter V is faster, simpler and less costly.

By contrast, a Chapter 7 trustee sells the assets of the business in a Chapter 7, and the business usually does not continue to operate. In a Chapter 7, the company does not get a discharge. Owners usually get nothing after liquidation, but personal guarantors of the business loans may still get pursued.

How the Bankruptcy Courts Will Interpret the Rules

For now, how the bankruptcy courts will interpret the rules is still an evolving process. As a result, it can feel like the “Wild West” for parties and judges who are still feeling their way through what the new law means. The tight deadlines also leave less room to maneuver. The rules are complex, and changes may be in the offing, so you need to be careful and deliberate about what you do. If you can get past that and the qualification limits in terms of the size of debt allowed and the amount that must be business debt, then this may be the best way to go if it’s available to you, because it means less expense and less hassle, as well as less risk of loss of ownership of your business.