I recently came across a new concept that took me a little off guard - a new Chapter V bankruptcy. When I first starting practicing law, I focused on distressed real estate which naturally led to a lot of bankruptcy discussions and a fair amount of Ch. 7 and Ch. 13 filings. Admittedly, I hated the process to be honest as it was frankly depressing and many clients were incredibly either down on their luck or disorganized (or both). That said, I learned a lot and always felt like I had a fairly good handle on the Bankruptcy code this was a bit surprising. With that said, I thought it was interesting an worthy of a blog post for those that deal in the business, debt and real estate world.
And no...don't call me to file them (lol), but happy to give you some referrals if needed.
Scott Weitz
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A Chapter V bankruptcy usually refers to Subchapter
V of Chapter 11 of the U.S. Bankruptcy Code — a streamlined reorganization
process designed specifically for small businesses.
Here’s a clear breakdown of the basics:
What
is Subchapter V (Chapter V) Bankruptcy?
Subchapter V is a special subsection of Chapter 11
that Congress added in 2019 under the Small Business Reorganization Act
(SBRA).
It is intended to make Chapter 11 faster, cheaper, and easier for small
businesses to reorganize rather than liquidate.
Who
Can File?
A “small business debtor” with non-contingent
debt of roughly $7.5 million or less (this limit has been extended
periodically by Congress).
Both individuals and companies can qualify if the debt is primarily
business-related. I believe the amount has or will be reduced to $3 Million.
Key
Features
1. Faster process
Subchapter V cases move quickly — typically confirmed in 90 days unless
the court extends.
2. No creditor committee
This avoids substantial fees and complexity.
3. No competing plans
Only the debtor may file a reorganization plan. Creditors cannot propose
their own.
4. No absolute priority rule
Owners can often keep their business without having to fully pay unsecured
creditors, which is not allowed in traditional Chapter 11.
5. Subchapter V trustee
A trustee is appointed but acts more like an overseer/mediator, not someone who
takes over the business.
6. Reduced administrative costs
Filing fees, reporting duties, and attorney requirements are lighter than in
full Chapter 11.
Why
Businesses Use It
Subchapter V is popular because it allows small businesses
to:
- restructure debt
- renegotiate leases
- reduce or stretch repayment obligations
- keep operating
- avoid liquidation under Chapter 7
It’s essentially Chapter 11 “lite”, tailored to
small-business survival.
For more information on distressed real estate investments or procedures, my email is Scott@WeitzCommercial.com.
C: 206.306.4034 - please text first
