How Consensual Confirmation Works
Under Section 1191(a), a Subchapter V plan is confirmed consensually when every impaired class of claims has accepted the plan. "Acceptance" means that holders of at least two-thirds in amount and more than one-half in number of the allowed claims in each class have voted to accept.
Classes that are not impaired -- meaning their legal, equitable, and contractual rights are not altered by the plan -- are deemed to have accepted and do not vote.
Key requirement: The plan must satisfy Section 1129(a)(1) through (a)(16), except that no disclosure statement is required (Section 1181(b)). This is one of the major cost savings of Subchapter V.
No Absolute Priority Rule
In traditional Chapter 11, the absolute priority rule requires that senior classes be paid in full before junior classes (including the debtor's equity interest) receive anything. This rule effectively forced small business owners to either pay all unsecured creditors in full or lose their businesses.
Subchapter V eliminates this barrier. Under Section 1181(a), the absolute priority rule of Section 1129(b)(2)(B)(ii) does not apply. This means the debtor retains ownership even if unsecured creditors receive less than full payment.
This is the key advantage of Subchapter V. Small business owners can keep their businesses while restructuring debt -- without the impossible requirement of paying all unsecured creditors 100 cents on the dollar.
Discharge Upon Confirmation
Under 1191(a) consensual confirmation, the debtor receives a broad discharge upon confirmation of the plan. This is the same timing as traditional Chapter 11 -- the discharge enters when the confirmation order becomes effective.
The 1191(a) discharge is broader than the cramdown discharge under 1191(b)/1192:
- 1191(a): Standard Chapter 11 discharge scope -- most debts discharged
- 1191(b): Narrower scope -- Section 523(a) exceptions apply (fraud, willful injury, taxes, student loans, etc.)
Important distinction: Because the discharge scope differs significantly, debtors should make every effort to achieve consensual confirmation. If even one impaired class rejects, the plan must proceed under 1191(b) cramdown with its narrower discharge. See section1192.org for details.
Confirmation Requirements
To be confirmed consensually, a Subchapter V plan must satisfy:
- The plan complies with applicable provisions of the Bankruptcy Code
- The proponent has complied with applicable provisions
- The plan was proposed in good faith
- Payments for services are subject to court approval
- The plan is feasible -- the debtor will likely be able to make all payments
- All fees and charges have been paid
- All impaired classes have accepted (for consensual confirmation)
No disclosure statement is required. The debtor files the plan and solicits votes directly, saving significant time and legal fees compared to traditional Chapter 11.
See also: Plan content requirements | How voting works
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