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

Subchapter V was written for the owner who wants to keep the company and cannot pay everyone. Its real innovation is arithmetic. It changes what an owner must surrender, and what a creditor may insist upon, before a judge will confirm a plan over that creditor's objection.

Seven features do the work, and they are best read in order, since each leans on the one before it.

1. Only the Debtor Writes the Plan, and the Clock Starts at Once

Section 1189(a) contains one of the shortest sentences in Chapter 11: "Only the debtor may file a plan under this subchapter." In a traditional case, the debtor's exclusive period runs 120 days, after which others may propose competing plans in the circumstances Section 1121(c) describes. In Subchapter V, exclusivity never ends.

The price is speed. The plan is due within 90 days of the order for relief, and Section 1188 requires a status conference within 60 days, preceded by the debtor's report on its efforts to reach a consensual plan. Extensions are available only for circumstances for which the debtor "should not justly be held accountable," a phrase worth reading twice before assuming the court will grant more time.

2. No Committee, No Disclosure Statement, No Quarterly Fee

Absent a court order for cause, Section 1181(b) switches off the provisions that create an official committee of unsecured creditors and the requirement of a court-approved disclosure statement. In a traditional case that statement must give a "hypothetical investor" enough to judge the plan, and a committee's professionals may be paid from the estate under Section 330.

Subchapter V cases also do not pay the quarterly United States Trustee fee that other Chapter 11 debtors owe on their disbursements. Each of these was a line item in the old arithmetic. Take them away and a case that once cost too much for a small company becomes affordable, or, to be exact about it, proportionate to what is at stake.

3. The Owner Can Keep the Company Without Paying Dissenters in Full

In a traditional Chapter 11 case, Section 1129(b)(2)(B) states the absolute priority rule: a class of unsecured creditors that votes against the plan must be paid in full, or no holder of a junior claim or interest may receive or retain anything on account of it. Owners hold the most junior interest there is. When the unsecured class says no and full payment is out of reach, the equity is what gives.

Section 1181(a) makes Section 1129(b) inapplicable in Subchapter V. In its place, Section 1191(b) directs the court to confirm a plan over dissenting classes if it "does not discriminate unfairly, and is fair and equitable," and Section 1191(c) defines fair and equitable without any requirement that owners surrender their shares.

Most of what Subchapter V does for owners follows from this one subtraction.

The old rule worked the way a marina treats a sailboat with a year of unpaid slip fees: the owner may reclaim the boat only after the whole bill is settled. Subchapter V lets the owner keep sailing it, on the condition that the charter income goes to the marina for somewhere between three and five years.

Take a hypothetical restaurant group with $900,000 in unsecured claims held by merchant cash advance funders, suppliers, and a former landlord. Under the traditional rule, a rejecting vote from that class would force the owners either to find the full amount or to give up the company. Under Subchapter V, the owners may keep their membership interests if the plan meets the tests in the next two sections. The creditors' objection (which funders will describe as a reward for the people who ran the business into trouble) runs into the rest of the statute, because Section 1191(b) still requires everything in Section 1129(a) except paragraphs (8), (10), and (15), including the guarantee in 1129(a)(7) that each dissenting creditor receive at least what a Chapter 7 liquidation would have paid.

4. The Price Is Measured in Disposable Income, for Three to Five Years

Section 1191(c)(2) requires that all of the debtor's "projected disposable income" received in "the 3-year period, or such longer period not to exceed 5 years as the court may fix," go to plan payments, or that property of equal value be distributed. Section 1191(d) excludes from disposable income what is reasonably necessary for "the continuation, preservation, or operation of the business."

The period chosen matters a great deal. A hypothetical business projecting $6,000 a month of disposable income commits $216,000 over three years and $360,000 over five, so the court's choice can move the total by two thirds. The exclusion for operating needs is where a creditor who distrusts the projections will aim its objection.

Section 1191(c)(3) adds a feasibility test: the debtor must be able to make the payments, or there must be a reasonable likelihood that it will, with appropriate remedies to protect creditors if it does not, which may include liquidating nonexempt assets.

5. The Trustee Brokers Agreement, and the Owner Still Operates

Every Subchapter V case has a trustee under Section 1183, either a standing trustee or one person the United States Trustee appoints. The trustee does not run the company; under Section 1184 the debtor in possession keeps operating the business, and the trustee takes over only if the debtor is removed.

Chapter 11 spends most of its length assuming that owners and creditors are adversaries. This one official is told by statute to find the sentence both sides will sign.

The trustee appears at the status conference and at hearings on valuation, confirmation, and asset sales, and Section 1183(b)(7) assigns the duty of helping the parties develop a consensual plan of reorganization. After a consensual confirmation, the trustee's service ends on substantial consummation of the plan.

6. Confirmation Needs No Accepting Class, but the Discharge Waits

A traditional plan that impairs any class needs the acceptance of an impaired class, with insider votes excluded, under Section 1129(a)(10). Section 1191(b) lets a Subchapter V plan be confirmed even when that requirement is not met. A plan that every class rejects can still be confirmed, if it satisfies the fair and equitable test.

The trade is timing. After a consensual confirmation, the ordinary Chapter 11 discharge on confirmation applies. After a nonconsensual one, Section 1192 grants the discharge only after the debtor completes the payments due within the first three years of the plan, or the longer period the court fixed, and it excepts debts whose last payment falls later and debts of the kind described in Section 523(a).

You make the payments first, and the discharge comes after.

7. The Door Has a Height: $3,424,000, for Now

Subchapter V is open only to a small business debtor as Section 101(51D) defines it: a person engaged in business whose aggregate noncontingent, liquidated secured and unsecured debts on the petition date do not exceed $3,424,000 (the figure in effect since April 1, 2025), counting neither debts owed to affiliates or insiders, and at least half of which arose from its business activities. Section 101(51D)(B) excludes certain affiliated groups over the limit, companies that report to the SEC, and their affiliates; the definition also leaves out businesses whose main activity is owning single asset real estate.

The higher $7.5 million limit lapsed on June 21, 2024. Congress has been considering its restoration in the Bankruptcy Threshold Adjustment Act of 2026, which passed the Senate on August 3, 2026 and the House on September 16, 2026 in separate bills; as of late September 2026 it had not been enacted. The limit that applies on a given filing date is a question to confirm with counsel before anything else is planned.

Whether a disputed merchant cash advance balance counts as noncontingent and liquidated is for the court. The checkbox on Official Form 201 is where the question first appears.

Where a Negotiated Route Still Belongs

Subchapter V suits a company with a viable operation, debts spread across many creditors, and a need for court protection that no private agreement supplies. An owner in that position needs bankruptcy counsel, and the sooner the better.

A company whose trouble is concentrated in two or three merchant cash advances presents a different calculation, and Delancey Street exists for that one. As a company that is not a law firm, it cannot file or conduct a Subchapter V case; it negotiates business debt outside of court and works alongside licensed attorneys, independent of the company, when a matter calls for legal work. A free and confidential first review can show whether the negotiated route is realistic before the owner commits to a plan that may last five years.

Bankruptcy law has always amounted to a schedule of prices for keeping something. Subchapter V lowered one of them, and the owners it helps most are the ones who read the schedule before they need it.