Subchapter V for a Sole Proprietor: 5 Reasons It Beats Chapter 13

For a proprietor whose debts came mostly from the business, Subchapter V can be the better chapter, and the reasons are written into the statute rather than into anyone's sales pitch. A sole proprietorship has no separate legal existence, so the owner is the debtor, and an owner who qualifies for both Chapter 13 and Subchapter V is choosing between two sets of rules that treat the same household and the same shop in very different ways.

Five of those differences favor the subchapter. None of them makes it the right choice for every proprietor, and the section after the fifth says where Chapter 13 keeps the advantage.

1. One Ceiling, Set Higher, With No Separate Unsecured Cap

Chapter 13 admits only an individual with regular income whose noncontingent, liquidated debts on the filing date fall below two separate lines under 11 U.S.C. 109(e): less than $526,700 unsecured and less than $1,580,125 secured, as adjusted April 1, 2025. Subchapter V asks a different question under section 101(51D): whether aggregate secured and unsecured debts, excluding debts to affiliates and insiders, total no more than $3,424,000, with at least half arising from business activity.

The unsecured line is where proprietors fall out of Chapter 13. A hypothetical print shop owner owes $610,000 on advances, a supplier judgment, and business credit cards, all unsecured, plus $300,000 on a building loan. The unsecured total is over the Chapter 13 line by $83,300. The combined $910,000 sits far inside the Subchapter V ceiling, provided the business share clears half.

Both figures may move. S. 3977 and H.R. 7730, versions of the Bankruptcy Threshold Adjustment Act of 2026, passed the Senate in August and the House in September as separate bills, and neither was law as of late September 2026; secondary reports say the measure would restore a $7.5 million Subchapter V ceiling and a combined $2.75 million Chapter 13 limit. Counsel should confirm both numbers before the petition is prepared.

2. The Home Loan That Paid for the Business Can Be Restructured

Section 1322(b)(2) forbids a Chapter 13 plan from modifying a claim secured only by a security interest in the debtor's principal residence. The paragraph has no exception for a loan whose proceeds went into the shop, whatever arguments get made at its edges.

Section 1190(3) supplies that exception in Subchapter V. A plan may modify such a claim if the money was not used primarily to buy the house and was used primarily in the debtor's small business. A proprietor who drew $150,000 on a home equity line to cover payroll and replace a press can, in the subchapter, propose new terms for that lender. In Chapter 13 the same lender keeps its original terms, though the plan may cure a default.

3. No Means-Test Budget, and No Automatic Five Years

This is the reason that matters most to proprietors whose household income is above their state's median. Under section 1325(b)(3), the expenses such a Chapter 13 debtor may deduct in computing disposable income are set by the standards in section 707(b)(2), the means test's formula, rather than by the household's own budget. Under section 1325(b)(4), the same debtor's applicable commitment period is not less than five years, unless the plan pays unsecured claims in full. A trustee or unsecured creditor who objects can hold the plan to both.

Subchapter V measures disposable income under section 1191(d) as what is not reasonably necessary for the support of the debtor and dependents or for the continuation, preservation, or operation of the business. There is no formula borrowed from the means test. The commitment period, when one applies, is three years unless the court fixes a longer one, up to five.

And the phrase when one applies carries the argument. Section 1191(a), which governs a plan the creditors accept, requires everything in section 1129(a) except paragraph (15), the individual Chapter 11 debtor's disposable income rule. A consensual Subchapter V plan must still give each creditor at least its Chapter 7 liquidation value and must still be feasible, but no statutory disposable income commitment attaches to it at all. The disposable income test enters only if the debtor asks the court to confirm over a rejecting class under section 1191(b).

Chapter 13 prices the plan by a formula. Subchapter V prices it by agreement, and falls back on the business's own budget only when agreement fails.

A proprietor who can bring creditors to terms, then, faces a negotiation in Subchapter V where Chapter 13 would have imposed a calculation. The subchapter is, in that sense, a better place to bargain from.

4. No Payments Before Confirmation, and a Narrower Estate

Under section 1326(a)(1), a Chapter 13 debtor must begin paying the trustee the amount the plan proposes within 30 days after the plan is filed or the order for relief, whichever is earlier, and the trustee holds the money until confirmation. Subchapter V contains no counterpart (a gap creditors will call free financing, though adequate protection answers most of that complaint). The court may still order adequate protection for a secured creditor, which section 1194(c) lets the trustee pay, but the subchapter imposes no general obligation to start plan payments before the plan is approved.

The estate differs too. Section 1306(a) sweeps a Chapter 13 debtor's postpetition earnings into the estate from the start. In Subchapter V the corresponding rule for individual Chapter 11 debtors, section 1115, does not apply, and section 1186(a) adds postpetition property and earnings only if the plan is confirmed under section 1191(b).

5. After a Consensual Plan, the Trustee Leaves

Under section 1326(c), a Chapter 13 trustee makes the payments to creditors unless the plan or confirmation order provides otherwise, and a standing trustee collects a percentage fee from plan payments that 28 U.S.C. 586(e) caps at ten percent for a debtor who is not a family farmer.

Section 1183(c) ends a Subchapter V trustee's service once a consensual plan is substantially consummated, and section 1194(b) makes the trustee the default payment agent only for a plan confirmed over objection.

Where Chapter 13 Keeps the Advantage

A Chapter 13 petition costs $313 at filing and a Chapter 11 petition, Subchapter V included, costs $1,738. No creditor votes on a Chapter 13 plan; the court applies the section 1325 tests on objection. The discharge a Chapter 13 debtor receives after completing payments under section 1328(a) excepts fewer of the categories in section 523(a) than the section 1192 discharge after a nonconsensual Subchapter V plan. A proprietor whose debts fit comfortably under the Chapter 13 lines, whose income is below the median, and whose house loan bought the house may find Chapter 13 simpler and cheaper, though the comparison turns on facts only counsel can weigh.

Both chapters require a bankruptcy lawyer's judgment. Delancey Street offers something different: a negotiated resolution of merchant cash advances and other business debt, pursued by agreement outside of court, from a company that is not a law firm and does not file cases in either chapter. Its initial review is free and confidential, and it routes legal questions to independently licensed attorneys. A proprietor facing a garnishment, a levy, or a lawsuit that settlement cannot reach in time needs counsel first. A proprietor brings the household and the shop into whichever chapter he or she chooses, and the better chapter is the one whose rules were written with both in view.