Subchapter V: Recent Successes and Changes on the Horizon

04.27.2022

By all counts, “subchapter V” of chapter 11 of the Bankruptcy Code has proven to be a popular and powerful tool for small businesses seeking to reorganize. Enacted under the Small Business Reorganization Act of 2019 (SBRA), subchapter V bankruptcy offers a streamlined reorganization process with shortened timeframes, fewer administrative burdens, and lower costs compared to a traditional chapter 11 bankruptcy case. 

To qualify for subchapter V, a company’s debts cannot exceed certain statutory limits, among other things. Originally, the debt limit was $2,725,625. On March 27, 2020, Congress increased the debt limit to $7.5 million as part of the CARES Act, but only for two years. Busy with other matters, Congress failed to extend the increased debt limit, which expired on March 27, 2022, causing the debt limit to revert to the original $2,725,625 figure for new cases filed after that date. The Senate recently voted to restore the debt limit to $7.5 million and favorable House action is expected later this year. Whether Congress will again raise the debt limit only temporarily, or instead on a permanent and inflation adjusted basis, is an open question.

Prior to enactment of the SBRA, small business chapter 11 cases resulted in confirmed plans of reorganization only approximately 25 percent of the time and the median time from case commencement to plan confirmation was 16 months.[1] In contrast, in 2019, 465 subchapter V bankruptcy cases were filed, with plans of reorganization confirmed in 221 (or roughly 47.5%) of those cases.[2] Of the confirmed plans, 59% had consensual plans (with all classes of creditors supporting the plan), and 41% had non-consensual plans (with at least one class of creditors voting against the plan or not voting).[3] The median time between filing the subchapter V petition and confirmation of the plan was just under six months.[4]  These striking figures highlight the potential benefits available to businesses under subchapter V.

The bankruptcy team at Hirschler is well-versed in the nuances of subchapter V and can help business owners and management if subchapter V is the right choice for your company. Brittany B. Falabella from Hirschler’s Richmond office recently guided Branches of Life LLC, a provider of  comprehensive support services for individuals with intellectual disabilities and autism and their families and caretakers, through a successful subchapter V which resulted in a consensual confirmed plan in just under six months that allows the continuation of these critical services. Lawrence A. Katz from Hirschler’s Tysons office was selected as a subchapter V trustee by the Office of the United States Trustee. Through his experience as a subchapter V trustee, Larry brings a unique perspective to help clients evaluate whether a subchapter V filing makes sense for their situation.

The Hirschler bankruptcy team is ready and able to assist you with your subchapter V and other bankruptcy needs, out-of-court workouts, and creditors’ rights concerns. Please reach out to one of our experienced attorneys today.

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[1] Ed Flynn, “Chapter 11 is for Individuals and Small Businesses?,” ABI Journal, December 2018.

[2] Hon. Michelle M. Harner, Emily Lamasa and Kimberly Goodwin-Maigetter: “Subchapter V Cases by the Numbers”; ABI Journal, October 2021.

[3] Id. 

[4] Id.