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

Technically, a sole proprietor means that you and your business are legally one and the same, so filing for bankruptcy also means that you are filing for personal and business bankruptcy. There are two types of bankruptcy that could give you the flexibility of keeping your property and making smaller, easier to manage, payments. In addition to Chapter 13, another form of bankruptcy that allows you to reorganize your debt is Subchapter V (or SubV). Under this method, you’ll develop a payment plan that can last between three to five years. Because subchapter V also allows for a restructuring of your business debt, it can be the right fit when you have too much debt for a Chapter 13. In addition, creditors have far less input under a SubV filing.

It’s not all good news, as there are cases where you won’t qualify for a SubV filing. However, if you can make SubV work, it allows your business to continue operating, restructures debt, and provides some extra benefits that may make it a better fit than a traditional Chapter 13 filing. While a Subchapter V filing has some similarities to a Chapter 13 filing, there are five important ways in which it can be better if you want to save your business.

Subchapter V Debt Limits Are Higher

The debt limit under Chapter 13 bankruptcy is under $526,700 for unsecured debt and under $1,580,125 for secured debt. (Unsecured debt is any debt that isn’t secured by collateral; think credit cards.) These debt limits rise periodically. Credit cards or bills from vendors are unsecured debt. Commercial mortgages or auto loans are secured by collateral. If one of these secured debts pushes you over the debt limit, you can’t file for Chapter 13. Subchapter V debt limits are higher: $3,424,000 for non-contingent liquidated debts, combined. In order to get a SubV filing, at least half of your outstanding debt has to stem from your business activity.

Have you spent money from your mortgage loan in the business? Subchapter V has an option to alter a mortgage on your main home by including it in your reorganization plan if the mortgage loan was mainly used for business, not to buy the home. Normally, Chapter 13 can’t change a loan secured only by your main home. While a Chapter 13 can cure defaults on loans that are only secured by your home, it can only modify a mortgage loan if the final payment on the loan is due before your payment plan ends.

Reorganization Plan

It can be difficult to get a complete plan together within the short time allowed under Chapter 13 bankruptcy. Your plan is due with the petition, or within 14 days. Subchapter V gives you a good deal more time, 90 days, to develop your reorganization plan. Also, only you can file a plan. Within 60 days, your court will hold a status conference to check on your progress toward a plan that creditors will agree to. You’ll file a report with the court on your efforts to negotiate with creditors before the conference.

Another advantage of Subchapter V bankruptcy is that you don’t need the creditors to agree to your reorganization plan, and don’t have to get a vote. A creditors’ committee often isn’t appointed to review your proposal in SubV cases. The court has to confirm a plan that is fair and equitable and doesn’t discriminate unfairly.

To be considered fair and equitable, you’ll need to commit all of your disposable income for three years under subchapter V, or longer (up to five years) if the court determines it’s needed. Chapter 13 typically runs for three to five years.

The Best Bankruptcy Filing for You

Chapter 13 may still be the best fit for you. If the amount of debt you owe is within Chapter 13’s limit, it can often be the best bankruptcy filing for you. One example of this is if less than half of your debt was business related.

These limits may change. A bill called H.R. 7730 would restore a $7.5 million limit under Subchapter V bankruptcy, and replace Chapter 13’s two debt caps with one combined limit of $2.75 million for cases filed after the bill becomes law. The bill had passed Congress and was waiting to be signed by the President in early October 2026. Until then, the current Subchapter V limit of $3,424,000 applies.

Keep in mind that it’s the same in Chapter 13 bankruptcy and a Subchapter V bankruptcy in a few important ways. Payroll withholdings and collected sales taxes are generally not dischargeable in either Chapter 13 or Subchapter V cases. You choose to keep or reject all commercial leases individually, with a rejected lease becoming unsecured debt in your plan.

Tally your secured and unsecured debts separately. Figure out how much came from your business, and how much is purely for personal expenses. A bankruptcy attorney can assess which of the two options is available and better for you, after considering your total debt, what share of the debt came from your business, how much disposable income you can commit to paying, and other details.