Chapter 11, Subchapter V was enacted to help small businesses having significant financial problems reorganize. It is a much less expensive, streamlined, and less time-consuming option to the classic Chapter 11 case. Two critical points are that the debtor must specifically choose to file under Sub. V and, as of April 1, 2022, have aggregate non-contingent liquidated debts of $3,024,725 or less.
Benefits of filing under a Sub. V are:
- Owners continue to own and operate the company;
- No disclosure statement;
- Exclusive right to file a plan of reorganization;
- Administrative claims can be paid over the life of the plan;
- No creditors’ committees;
- No quarterly US Trustee fees; and
- Appointment of a helpful trustee.
To confirm their plan, debtors must show that creditors will receive as much they would in a liquidation. Secured creditors can elect to have the entire amount of their claims remain secured by their collateral, while receiving altered payment terms under the plan. Additionally, secured creditors maintain the right to be adequately protected for the use of their collateral, typically in the form of “adequate protection payments.”
Other aspects of Sub V. cases include: the assumption of executory contracts under certain conditions and claims for goods delivered within 20 days prior to the bankruptcy are treated as administrative expenses, plans are often negotiated with the creditors and the trustee, the trustee is terminated when, the debtor is granted a discharge when the plan is substantially consummated.
While it is always better for a plan to be confirmed consensually, it can be confirmed over the objections of certain creditors under specific circumstances.
If the plan cannot be confirmed, it may be time to reassess whether the business is still viable. If the business is no longer viable, it may be necessary to convert the case to a Chapter 7 liquidation.
Any bankruptcy case is extremely serious and should not be entered into lightly. You should retain qualified bankruptcy attorneys to help you make important decisions regarding your choices whether you are a potential debtor or a creditor. Call us today