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~5 minute read

Reviewing the Small Business Reorganization Act and Subchapter V Bankruptcy

As of April 19, 2021, the Small Business Reorganization Act and Subchapter V, the new bankruptcy option for small businesses, has been in effect for 14 months, and like a human toddler, it’s walking, talking, and changing.  So even though I’ve posted before about how Subchapter V is more streamlined and far less expensive than a traditional Chapter 11 bankruptcy, let’s get into a bit more detail about how the evolving Subchapter V can help your small business.

Small business reorganization act


One of the biggest changes to the Small Business Reorganization Act in the last 14 months is the nearly-tripled debt limit.  Originally, the Small Business Reorganization Act only allowed individuals or businesses with approximately $2.7 million in debt to file a Subchapter V bankruptcy.  But in March 2020, the CARES Act increased that $2.7 million to $7.5 million.  And just a few weeks ago, the Covid-19 Bankruptcy Relief Extension Act of 2021 extended the increase, which means that an individual or small business with up to $7.5 million in debt is still eligible to file a Subchapter V bankruptcy.

When I say “small business,” I mean a business that isn’t subject to the reporting requirements of the Securities Exchange Act – if you have to ask, you most likely are not! – and isn’t part of a big group of businesses that would collectively owe more than $7.5 million.  Your business can’t just own or operate single-asset real estate.  And whether you are an individual or business, you must be “engaged in commercial or business activity” and at least half of your debt must be business debt.


You already know that a Subchapter V bankruptcy is less complicated – because you don’t have to file some of the “standard” Chapter 11 paperwork, and you don’t have to answer to a committee of creditors – and that it is less expensive, because you don’t have to pay quarterly fees to the Office of the United States Trustee.  So you’re free to focus your time and energy on figuring out what you need to do to get yourself or your business a fresh start!

In a Subchapter V bankruptcy case, only you can propose a repayment plan.  And you have 90 days to do so.  But unlike some of the other chapters of bankruptcy, you don’t need to get all of your creditors to agree on your proposed repayment plan.  You still can, of course – that’s called a “consensual” plan – but if you have a particularly difficult or stubborn creditor, the Bankruptcy Court can still confirm your proposed plan and let you move past that particular stick in the mud.

How It Works

Whether you get all of your creditors on board or not, Subchapter V bankruptcy allows you to repay some of what you owe over a period of three to five years.  Your payment amount is calculated from your projected disposable income.  In some cases, you can distribute the equivalent value of property instead.  Dunlap Law can help you review your financial projections to confirm that you can reasonably expect to make your three to five years of payments and/or property distributions.

One of the easiest examples of paying less than what you owe is a car loan.  In a standard car loan, you have to pay back all of what you borrow, plus interest.  But in a Subchapter V, you only have to pay back the actual value of your vehicle.  The difference between the value and what you owe is wiped away.  And that’s just one small example of how a Subchapter V bankruptcy can help you or your business.  Imagine if the same were true for all of your business debts!  To learn more, please schedule an appointment with Dunlap Law.