The expiration of Subchapter V, a type of bankruptcy protection filing for small businesses with more than $3 million in debt, has caused confusion and complications for many small business owners. Introduced as part of the Small Business Reorganization Act in 2020, Subchapter V provided an affordable and efficient alternative to the traditional Chapter 11 bankruptcy filing. It allowed small businesses with less than $3 million in debt to file under this option.
During the pandemic, however, the debt limit was extended to $7.5 million, providing more relief to struggling small businesses. Unfortunately, a bill that would have made this extension permanent failed, causing the debt threshold to revert back to $3 million on June 21. This means that only small businesses with less than $3 million in debt can now file under Subchapter V.
Despite these limitations, there are still many benefits to filing under Subchapter V. For example, it offers shorter deadlines for filing reorganization plans and greater flexibility in negotiating restructuring plans with creditors. There is also no requirement to pay U.S. Trustee quarterly fees, which can be a significant cost savings for small businesses during uncertain economic times.
Each case appoints a trustee who helps facilitate a reorganization plan with the small business debtor and creditors. Data from the Justice Department’s U.S. Trustee Program shows that between 2020 and 2023, Subchapter V filers had a higher percentage of plans confirmed by a judge compared to other types of bankruptcy protection filers. Additionally, they had a lower percentage of plans dismissed and a shorter time to confirmation, highlighting the advantages of this filing option for small businesses looking to navigate the bankruptcy process.
Overall, while there may be some challenges associated with filing under Subchapter V due to its expiration and limited availability for certain types of small businesses
