Chapter 11 Sub Chapter V For Small Businesses

Are you struggling to save your small business while dealing with overwhelming debt? You don’t have to shut down just because money is tight. Chapter 11 Subchapter V gives you a way to stay open, stop collection efforts, and catch up on what you owe. A bankruptcy lawyer from Gina H. McDonald & Associates, LLC, can help you figure out if this option is right for you and walk you through every step of your case. Contact us today to set up your free initial consultation and take the first step toward a fresh start for your business.

What Is Chapter 11 Subchapter V Bankruptcy?

Chapter 11 Subchapter V bankruptcy is a legal process that allows small business owners to keep their businesses going while reorganizing their debts. It gives business owners a way to get their finances in order without shutting down. Congress added Subchapter V to Chapter 11 of the U.S. Bankruptcy Code in 2019 to make the bankruptcy process faster, simpler, and less expensive than regular Chapter 11 cases.

When a business owner files under Subchapter V, they can keep operating while they work on a plan to repay creditors over time. The business owner stays in control and does not have to give up the business to a trustee. Additionally, the court does not usually require the business to file a disclosure statement like in traditional Chapter 11 cases.

Who Qualifies for Subchapter V?

Business owners must meet certain rules to qualify for Subchapter V. The business must owe no more than $3,424,000 in total debt as of April 1, 2025. At least half of that debt must come from business activity, not personal loans. Both individuals and companies can use Subchapter V, but they must be actively running a business to qualify. Real estate companies usually do not qualify unless they do more than just hold a single rental property.

The business owner must also make it clear that they are filing under Subchapter V when they begin their case. Otherwise, the court will treat the case as a regular Chapter 11 bankruptcy.

How Subchapter V Differs from Traditional Chapter 11

Subchapter V requires less time, lower costs, and fewer steps than regular Chapter 11. It gives only the business owner – not creditors – the right to file a repayment plan, which usually keeps the case moving faster. The business owner does not need to file a disclosure statement unless the court says so, which removes a substantial hurdle from the process. The court usually does not create a creditors’ committee for Subchapter V cases, which can save money and prevent delays. Another key difference is the role of the bankruptcy trustee. In traditional Chapter 11, the court usually only appoints a trustee in rare cases involving fraud, gross mismanagement, or other serious misconduct. A Chapter 11 trustee can take control of the business. In Subchapter V, the court automatically appoints a trustee in every case, but that trustee plays a different role. The Subchapter V trustee does not run the business or take over operations. Instead, they help the debtor stay on track, encourage creditor cooperation, and support the development of a repayment plan. The business owner remains in control throughout the process unless the court finds specific cause to remove them. Finally, Subchapter V also removes the “absolute priority rule.” That means business owners can keep their companies even if they do not fully repay unsecured debts. Traditional Chapter 11 cases often force owners to give up equity to creditors unless they pay everything back.

The Benefits of Subchapter V for Alabama Business Owners

Subchapter V gives Alabama business owners a way to stay open, stop collections, and fix their debts without shutting down. Once you file, the “automatic stay” takes effect, which prohibits creditors from pursuing lawsuits, wage garnishments, and foreclosure.

Subchapter V also costs less than regular Chapter 11. You don’t have to pay quarterly trustee fees. The court usually doesn’t appoint a creditors’ committee, which saves you even more money. Only you can file your reorganization plan, so you stay in control of the process.

This option also makes it easier to keep your business since you don’t need to repay every dollar of unsecured debt to complete your plan. You can protect your company, restructure what you owe, and move forward without closing your doors.

The Reorganization Plan

In Subchapter V, only the business owner can file a plan of reorganization. You must do this within 90 days after starting the case. The plan must explain how you will repay your debts over time. You can stretch your payments out for three to five years.

The plan must include your business history, a list of debts, and a breakdown of how you’ll pay creditors. You’ll also need to show that your plan makes sense and that you can actually follow it. If you own your home and used it to fund the business, you may have the chance to change loan terms under the plan.

If your creditors agree, you can confirm the plan with their support. If they don’t, you can still move forward using a “cramdown” process. With this option, the court may approve your plan as long as it treats all of your creditors fairly and follows the rules.

What Happens After Plan Confirmation?

After the court confirms your plan, you start making payments based on that plan. You keep running your business in the meantime. If your creditors agreed to the plan, the trustee’s role ends after you start following it. If the court used a cramdown process to confirm the plan, the trustee will stick around to monitor payments until you finish.

While you carry out the plan, you won’t have to worry about lawsuits or collection calls from creditors included in the plan. The confirmed plan protects you as long as you make your payments on time.

If you eventually make all required payments, the court will grant a discharge. That clears most remaining debts tied to your case. At that point, your business has a clean slate, and you can move forward without the weight of past due bills or legal pressure dragging you down.

Why Work with a Bankruptcy Lawyer?

Filing for Chapter 11 Subchapter V bankruptcy is a complex process. If you miss a step or make a mistake, the court could dismiss your case or delay your progress. An experienced bankruptcy lawyer can guide you through every part of the process and keep your case moving forward by:

Reviewing your finances and confirming that you qualify for Subchapter V
Explaining what debts you must include in your case
Preparing and filing your bankruptcy petition and all related documents
Attending the court’s status conference and drafting the required report for you
Working with the Subchapter V trustee to keep your case on track
Meeting with creditors to try to forge an agreement on your repayment plan
Writing a plan of reorganization that follows the law and matches your goals
Helping you take advantage of cramdown rules if you cannot get creditor approval
Asking the court for more time if you need help meeting a deadline
Protecting your rights if a creditor files a motion or objects to your plan
Asking the court to approve changes to loans backed by your home

Tracking your plan payments and helping you stay in good standing after confirmation

Contact an Alabama Bankruptcy Attorney Today

Take control of your business debt and get the support you need to move forward. With over 20 years of experience, the team at Gina H. McDonald & Associates, LLC, can guide you through every step of the process. Contact us now to arrange your free initial consultation.