What Is Section 1191?
Section 1191, added by the Small Business Reorganization Act of 2019, governs plan confirmation in Subchapter V cases. Two paths: consensual (1191(a)) and cramdown (1191(b)).
1191(a) - Consensual Confirmation
All impaired classes accept. The absolute priority rule does not apply - the debtor retains equity even if unsecured creditors are not paid in full.
Key advantage: Small business owners keep ownership without paying unsecured creditors in full.
1191(b) - Cramdown
If impaired classes reject, the court confirms if the plan commits all projected disposable income for 3-5 years and does not discriminate unfairly.
Who Qualifies?
- Aggregate noncontingent liquidated debts not exceeding $7,500,000
- At least 50% from commercial or business activities
- Must be engaged in commercial or business activities
1191(a) vs 1191(b) - Key Differences
The distinction between 1191(a) and 1191(b) is the most consequential decisión point in a Subchapter V case. It affects discharge timing, creditor treatment, and post-confirmation obligations.
Why 1191(a) vs 1191(b) Matters: A Real-World Example
Consider a small business debtor whose plan proposes to pay unsecured creditors 10% over 3 years. If all creditor classes vote to accept, the plan is confirmed under 1191(a) and the debtor receives an immediate discharge. The debtor continues operating the business free of pre-petition debt from day one of confirmation.
If even one impaired class rejects, the debtor must confirm under 1191(b). This requires committing all projected disposable income for 3-5 years - and the discharge is deferred until those payments are complete. The debtor operates under court supervision for the entire plan period.
The ballot outcome can be the difference between immediate freedom and years of monitored payments. In practice, many Subchapter V cases are confirmed under 1191(b) because creditor engagement is often low.
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Section 1191 by Federal Circuit
Subchapter V is five years old - its confirmation doctrine is still being built, and case law varies meaningfully by circuit. The Fourth Circuit's Trepetin, the Eleventh's Seven Stars, the Fifth's Pearl Resources, and the Ninth's Bonert/Walker are the anchors most commonly cited in the absence of circuit-court precedent. Each page below covers the leading in-circuit Subchapter V decisions, Chapter 11 filing volume, and practice tips.
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Related Resources
section1192.org - Subchapter V cramdown
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