What Is Subchapter V?
Subchapter V was added to Chapter 11 by the Small Business Reorganization Act of 2019 (SBRA). It provides a streamlined, faster, and cheaper path for small businesses to reorganize. Before SBRA, traditional Chapter 11 was prohibitively expensive for most small businesses -- often costing $50,000 or more in professional fees.
Who Qualifies?
A person or entity engaged in commercial or business activities with aggregate noncontingent, liquidated debts not exceeding $7.5 million (as extended by Congress). At least 50% of debts must arise from the debtor's commercial or business activities. Single asset real estate debtors are excluded.
Key Advantages
No creditors committee required (saves significant expense). No disclosure statement needed (saves months). No absolute priority rule -- the debtor can keep equity even if unsecured creditors are not paid in full. Plan must be filed within 90 days. A Sub V trustee is appointed to facilitate, not to operate the business.
The Sub V Trustee
Unlike a Chapter 7 trustee who liquidates assets or a traditional Chapter 11 trustee who takes over operations, the Sub V trustee serves as a facilitator. They help negotiate with creditors, monitor plan payments, and can recommend conversion or dismissal if the debtor is not complying.
Consensual vs Nonconsensual Plans
Section 1191(a): If all impaired classes of creditors accept the plan, it is confirmed as a consensual plan. Standard Chapter 11 confirmation requirements apply.
Section 1191(b): If at least one impaired class rejects the plan, the court can still confirm it as a nonconsensual "cramdown" plan if it meets additional requirements, including committing projected disposable income for 3-5 years.
Discharge
The discharge in Sub V depends on whether the plan was consensual or nonconsensual. Consensual plans receive discharge similar to traditional Chapter 11. Nonconsensual plans under Section 1192 have the Section 523(a) exceptions applied -- certain debts survive. Learn about Section 1192 discharge.
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