Streamlined Chapter 11 for Small Businesses

In this time of economic upheaval and distress more businesses are looking at reorganizing. Subchapter V of Chapter 11 offers a streamlined process for small businesses going through bankruptcy. Simplifying the process means that filing under Subchapter V significantly reduces the time and money typical bankruptcy takes, making it more accessible to more businesses. Under Subchapter V, currently, businesses with up to $7.5 million in debt can be eligible. The threshold was raised to $7.5 million for one year as part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act from $2.7 million.

A debtor under Subchapter V must pay their debt over a 3 to 5-year period. The debtor is required to use their projected disposable income to paying creditors. Subchapter V allows the debtor to pay administrative expenses over the life of the plan. The plan of reorganization must be filed within 90 days after entering bankruptcy.

A trustee is appointed under Subchapter V. The primary purpose of the trustee is to facilitate a plan between the debtor and creditors. Importantly, the debtor does retain control over its assets and operations.

An important difference between Subchapter V and Chapter11 is that a Subchapter V does not have a creditor committee. This difference makes it significantly easier to have reorganization plans approved. This is all part of the streamlining process. This also means there is no creditors’ committee to fund. Additionally, there is no disclosure statement to prepare and pay for and no administrative fee to be paid to the United States Trustee. All of this saves a lot of time and money.

Filing under Subchapter V does require the submission of the business’s most recent balance sheet, statement of operations, cash flow statement, and a federal income tax return.

Subchapter V provides a valuable opportunity to save your business while continuing ownership and management. It is an expedited process, as compared to the traditional Chapter 11, and it saves a lot of time and money. The economic downturn caused by the pandemic has hit small businesses particularly hard. Subchapter V may be a way for your business to survive. If you are considering filing for a form of bankruptcy contact Shoffner & Associates to discuss what will work best for you and your business.

With the right help, you are more likely to succeed. The attorneys at Shoffner & Associates will be happy to help you.

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