BankruptcyArkansas Chapter 11, Subchapter V Bankruptcy

March 7, 20240

Understanding The New Chapter 11, Subchapter V Bankruptcy

In February of 2020, a new subchapter of Chapter 11 went into effect. Subchapter V was one of the many reforms to the Bankruptcy Code enacted by the Small Business Reorganization Act (SBRA) of 2019. Though it was not created in response to the global Covid-19 pandemic, Chapter 5 comes at the right time for many small businesses struggling to keep afloat among state-wide shutdowns and dramatically reduced business.

As a new form of Chapter 11, Subchapter V bankruptcy allows businesses and individuals to restructure and reorganize their debts, if at least 50% of the debt arose form business or commercial activities. In some cases, this may include lowering amounts due, and in all cases, it provides small businesses and individuals a way to make their debts more manageable and pay them off over time. Sometimes referred to as the “fast-track” bankruptcy option, Subchapter V is typically a more streamlined process than the traditional Chapter 11.

Because the Subchapter V bankruptcy is relatively new, it is more important than ever that you work with a bankruptcy attorney who understands how the process works. At Caddell Reynolds Law Firm, we are highly familiar with the updated Bankruptcy Code, as well as all matters pertaining to the new Subchapter V filings. Our attorneys are happy to meet with you to answer your questions, discuss your various options, and determine the best course of action based on your unique situation. Every person interested in this new chapter canl receive a free 1 hour consultation to explain the benefits and how it works.


What Is Subchapter V Bankruptcy?

Subchapter V is technically a new subchapter of Chapter 11 bankruptcy. As such, Subchapter 5 works in much the same way as Chapter 11—with some key differences.

Some of the main differences between Chapter 11 and Chapter 5 bankruptcy include:

  • Subchapter V allows for the appointment of a standing trustee
  • In Subchapter V, you do not have to pay U.S. Trustee quarterly fees
  • Subchapter V does not involve an appointed committee of unsecured creditors
  • With Subchapter V, you must file your reorganization plan within 90 days from the filing of the case.
  • Only the debtor can file the reorganization plan (creditors may not)
  • Debtors may confirm a reorganization plan without creditor acceptance

One of the other key differences between a regular Chapter 11 or a Small Business Chapter 11 and a Subchapter V bankruptcy is the speed at which the bankruptcy is resolved. When you file for Subchapter V, the bankruptcy court schedules a substantive status conference within 60 days, and you must submit your reorganization plan within 90 days. In contrast to a Small Business or a regular Chapter 11 the average time allowed to file a Chapter 11 Plan—anywhere from 300 days for a Small Business case, or as long as three to five years for a regular Chapter 11—Subchapter V bankruptcy is an incredibly fast, streamlined process.

Who Is Eligible To File For Subchapter V Bankruptcy?

Subchapter V bankruptcy is available to individuals, businesses and commercial enterprises that have at least 50% of their debt which arose from business or commercial activities, and meet certain debt limits. To file for Subchapter V, your total secured and unsecured debts must not exceed $2,725,625.00. This limit has been temporarily raised to 7,500,000.00, but expires on March 27, 2021.

Additional eligibility requirements include:

  • The primary activity/operation of the business cannot be single-asset real estate
  • The business owner (debtor) must choose (elect) to file under Subchapter V

If you do not elect to proceed under the Subchapter, the regular Chapter 11 bankruptcy rules will apply in your case. For this reason, it is important that you plan accordingly and act promptly if you think you may wish to pursue a Subchapter V bankruptcy.

How The Process Works

Once you have determined that you are eligible for a Subchapter V bankruptcy, the next step is filing the bankruptcy petition. This typically involves gathering information about the assets, the liabilities and other related information, and providing several key documents, including federal tax returns, and a balance sheet, cash flow statements, and a statement of operations, if available.

Next, the bankruptcy court appoints a trustee. In many ways, the trustee in a Subchapter V filing operates in much the same way as a trustee in a Chapter 12 bankruptcy. In a Subchapter V bankruptcy, the trustee is not granted authority or direct managerial control over the debtor’s assets or business; rather, the trustee acts as a facilitator. Their duties may include helping to create an agreed-upon reorganization plan (called a Consensual Plan), ensuring the timely payment of debts according to the plan, and appearing at key hearings and other proceedings. There are Trustee fees related to the work that is performed by the Trustee.

Once the debtor has filed the bankruptcy petition, the court will schedule a status conference to take place within 60 days. The debtor is required to file a report of their efforts (including future efforts) to create a consensual reorganization plan at least 14 days before the status conference and then must file the official reorganization plan within 90 days of filing the original bankruptcy petition.

How Caddell Reynolds Law Firm Can Help You

Filing for Subchapter V bankruptcy can allow you to manage and reorganize your debts quickly while also keeping your business afloat. However, the process is relatively new and very complex. It is strongly advised that you work with an experienced legal team who can (1) provide you with the necessary information to properly evaluate your situation, (2) guide you through the necessary steps and (3) ensure that your rights and best interests are protected every step of the way.

At Caddell Reynolds Law Firm, our Arkansas Chapter 11, Subchapter V bankruptcy lawyers are well-versed in the new subchapter, as well as all other forms of bankruptcy. We can advise you on your various options and provide the guidance you need to feel confident moving forward. Our team offers personal attention and tailored legal counsel, as well as aggressive client advocacy you can trust.