Small Business Bankruptcy Attorneys: 6 Marks of Real Subchapter V Experience

Small business owners thinking about Subchapter V need a very particular kind of bankruptcy attorney: someone who checks eligibility before they file, knows how to count your debts, can spot exceptions like single asset real estate and affiliated debtors, and understands the timing rules for 60 and 90 days after filing. Someone who can build a plan the judge will confirm, and be straightforward about the fees.

Eligibility Is a Gating Factor

Putting good things within reach requires figuring out who can get in. Subchapter V is no different. Eligibility is a gating factor in Subchapter V cases. Small business owners often want to jump ahead to think about what will happen once they file their case. But that’s a discussion debtors and attorneys really can’t have until eligibility questions have been answered. It’s always better to know the rules you play under before spending thousands of dollars.

For owners thinking about subchapter V, the debt ceiling is $3,424,000. That counts noncontingent, liquidated, secured and unsecured debts. The number of dollars that get counted against the debt ceiling is different from the balance sheet. Don’t assume an account is not disputed, and remember that what the debtor thinks is settled may not be what the creditor thinks. Eligibility calculations can be tricky. Disputed claims, insiders, and affiliates all require special consideration.

You may need to think again if you have guaranties or co-signers, affiliates who may need to file too, or questions about debt classification or categorization. Do guaranties count as business or personal debts? What about co-obligors? Good lawyers need to know what questions are critical and when someone might get tripped up. Make sure your attorney considers those questions carefully before you file.

Bill H.R. 7730 would permanently raise the debt ceiling to $7.5 million. It passed Congress but still needs to become law. A good lawyer knows where a bill is in the legislative process, and treats it as a hypothetical possibility, not as a done deal.

A second eligibility mark is that at least half the debt is commercial in nature. That’s usually straightforward for an LLC or corporation, but it’s tougher for individuals with other, unpaid obligations. Businesses that liquidate and leave behind business related debts or claims seem simple, but can be trickier than they look.

A good bankruptcy lawyer knows that the business of owning single asset real estate excludes a debtor. What about the owner of a building who also has an ongoing business there? It’s a facts and circumstances kind of determination and requires the debtor and the attorney to work together and get the facts right.

For owners with multiple LLCs, group debt can eliminate eligibility. A debtor can’t game the system by filing one chapter 11 and leaving behind other affiliates. Publicly held companies are ineligible, as are certain of their affiliates.

Once eligibility is settled, navigating the subchapter v deadlines is like anything else in bankruptcy. Some things must happen on time, in specific ways, to keep your case on track. The initial status conference is within 60 days, and the debtor’s report of what progress has been made on a plan must be delivered two weeks before the conference. A good Subchapter V attorney knows that a subchapter V debtor has only 90 days to propose a plan.

With subchapter V, only the debtor can propose a plan. Court extensions needed to keep the case on track are given only to debtors who aren’t at fault. It’s why a good lawyer works hard before filing to learn the goals of the debtor, get the business’s finances in order, and draft a plan that a judge will confirm. While some attorneys try to make excuses and shift the blame when a case moves slowly, a good subchapter V lawyer plans in advance to deliver the plan on time.

Confirmability is the fifth mark. Qualifying for subchapter v doesn’t mean a successful case. It still requires a workable budget, a plan for what to do about secured debt, cash collateral, and taxes, and a feasible path to confirmation. Creditors who reject a plan can make it challenging. But sometimes the debtor can show that confirmation is still fair and equitable. It takes all projected disposable income for 3 years, up to 5, and needs to be practical.

Sixth mark is that the debtor’s lawyer has to be a ”disinterested” person who gets hired with court approval. If you owe the attorney less than $10,000, that doesn’t disqualify the attorney from being your counsel. Your lawyer must file a statement of compensation within 14 days after the order for relief, and give it to the U.S. trustee, who can use it to challenge excessive fees.

Fees and other costs for a Subchapter V case include a filing fee of $1,167 and an administrative fee. Unlike traditional Chapter 11, there is no quarterly U.S. Trustee fee in a subchapter V case. But a trustee must be appointed.

The eligible debt limit is important. But a debtor who misses it still has options. It’s why a good lawyer looks at both Subchapter V and traditional Chapter 11. An automatic stay, being a debtor in possession, an ability to propose a plan, ability to sell assets, and tools to deal with leases remain available there. Better to know upfront if Subchapter V is not available than to move forward blindly. An experienced lawyer makes clear what’s available, explains why they recommend filing one way or another.

When choosing an attorney, ask questions. In your first meeting, look to see if they test eligibility, understand deadlines, what your budget can be, and how much it costs. Some debtors want only to discuss filing. A better lawyer will get the facts first, and make sure a subchapter v bankruptcy is a good fit for the business’s owners and their situation. Watch out for an attorney who doesn’t talk about eligibility before the bankruptcy filing.