Being a small business owner can be extremely lucrative and financially freeing, but it can equally trap you into insurmountable amounts of debt and regret if unsuccessful. It can be easy to bury your head in the sand and let your anxieties consume you. It’s important that you do not panic, take a breather, and take your situation head on. Assessing your situation in full will reveal options you may not have known were available to you; it could be the lifeline between “We’re shutting down” and “We’re back on track.”
Do You Owe Less Than $3.024M?
Small businesses face a disproportionate burden to keep operations consistent, especially during times of economic uncertainty; typically, they are the first to shut down. Retrospectivity, COVID was exemplary at this phenomenon. During these times, there were plenty of alternatives for small businesses besides closing for good. In recent times, some of these leniencies are nonexistent. With this, small businesses may feel suffocated by the burden of shutting down completely.
Financially speaking, if a small business owes less than $3.024 million, bankruptcy might be the best solution to give your business a fair shot at long-term success, but not with traditional Chapter 11. It’s incredibly expensive and complex, making this option nonviable for many small business owners, but Subchapter V might be a better alternative.
Is Subchapter V Right for You?
Chapter 11 bankruptcy isn’t the only filing a business can complete; there are plenty of additional sub chapters businesses can file that may suit their needs more effectively. Subchapter V bankruptcy is a simplified alternative to Chapter 11 for small businesses with the goal to allow them to restructure, while keeping operations running.
It’s a faster, cost-efficient option to allow for more owner control and debt relief during uncertain financial periods of your business, supporting your long-term goals without starting from scratch. In other words, if cash flow is healthy but debt is suffocating it, Subchapter V is built to loosen the noose, not cut the business off entirely.
Despite the advantages it proposes compared to Chapter 11, Subchapter V isn’t right for all businesses. Subchapter V is ideal for businesses with less than $3.024 million in debt, facing temporary financial distress while long term operations are still viable, owners who want to restructure instead of liquidating, or businesses with predictable and stable revenue post-debt adjustment.
What Is Subchapter V?
Subchapter V is part of Chapter 11 bankruptcy, enacted by the Small Business Reorganization Act of 2019. It was designed to help small businesses restructure debt affordably and efficiently. Filing under Subchapter V enables businesses to reorganize and regain financial stability without losing ownership.
This principle alone keeps businesses alive while uncertainty looms and gives owners the confidence to keep pursuing their business venture. Both individuals and small businesses can file for Subchapter V, as long as they are engaging in commercial activities. Limitations exist for entities looking to file Subchapter V; an individual or businesses debt must be below roughly $3.4 million as of 2025, subject to periodic adjustments.
The Subchapter V Playbook
If you or your business is considering Subchapter V over standard Chapter 11 bankruptcy, here are the general steps taken to get the process started.
Step 1: Consultation with a bankruptcy attorney to assess eligibility.
Step 2: File Chapter 11 petition electing Subchapter V status.
Step 3: Court appoints a Subchapter V trustee.
Step 4: Status conference within 60 days to set expectations.
Step 5: Debtor files reorganization plan within 90 days.
Step 6: Court confirms the plan if feasible and fair.
Step 7: Debtor makes plan payments and continues operating.
It is important to ensure you understand logistics at every step, to ensure timely processing, and to continue your operations with as little inconvenience as possible.
Conclusion
Businesses who are unable to sustain future operations after filing may be better off filing for Chapter 11. In this case, it would potentially lead to more capital loss if Subchapter V is attempted, leading to Chapter 11 in the end.
Subchapter V bankruptcy is an affordable, streamlined path for smaller businesses if viable. It offers more control, and continued business operations are more aligned with long-term operational goals. To maximize the return on investment through Subchapter V, it is crucial to consult with an attorney early on. Contact us at Romano Law to learn which option will be the best for you and your business needs.
Contributions to this blog by Anastasia Pedraza.