Carragher Law LLP

Do you have a small business that keeps you and others employed but can’t pay all of your accumulated debts? Is your business saddled with legacy debts from COVID-era slowdowns? Do you need time to pivot to a new business plan or product? Subchapter V of the Bankruptcy Code is a powerful tool that allows you to settle your business debts, pledge your company’s projected net profits for the next 3-5 years and retain ownership of your business. Payments to general creditors can range from cents on the dollar to full repayment over time depending on your circumstances.

Subchapter V is available to small businesses and individuals engaged in commercial or business activity. The process generally takes less than a year to complete, and if your business debts are less than the cap (currently around $3.4 million) you can get all the benefits of a full-blown Chapter 11 in far less time and at a fraction of the cost. Some key features of Subchapter V are:

Trustee Appointment

  • A Subchapter V trustee is appointed in every case. The trustee evaluates the business helps facilitate a consensual plan, but unlike a trustee in a regular Chapter 11 cases, the Subchapter V trustee doesn’t operate the debtor’s business.

Plan Process

  • A plan must be filed within 90 days of the bankruptcy petition (unless extended by court for circumstances beyond debtor’s control).
  • Only the debtor can file a plan (unlike regular Chapter 11, where creditors may propose their own if deadlines are missed).

Simplified Plan Approval (“Cramdown”)

  • No requirement for an impaired consenting class of creditors.
  • Plan can be confirmed if it is “fair and equitable,” the debtor commits disposable income for 3–5 years, and creditors get at least as much as in a Chapter 7 liquidation.

No Absolute Priority Rule

  • In a regular Chapter 11, the owners can’t retain their equity unless creditors are paid in full.
  • Subchapter V removes that hurdle, making it easier for owners to retain their business.

Lower Costs

  • No requirement to file a disclosure statement (unless the court orders it).
  • No quarterly U.S. Trustee fees (significant savings compared to Chapter 11).
  • No Creditors’ Committee (another significant savings as compared to a regular Chapter 11 where the debtor has to pay the expenses of lawyers and financial advisers to the committee).

An initial limited engagement will help to assess whether you are a candidate for a Subchapter V filing. If so, we will agree on a retainer and transparent fee structure and proceed with the case. My fees and the fees that will be charged by the Subchapter V trustee are all subject to later review and approval by the Bankruptcy Court. It is never too early to reach out for bankruptcy advice, so get in touch to assess your options.