Subchapter 5 Bankruptcy
Under Chapter 11 of the bankruptcy code, businesses that are still viable can apply for a court-ordered restructuring and repayment plan for their outstanding debts. This allows the business to remain operating while dealing with its unsecured debt in a manageable way. In 2019, Subchapter 5 was added to the code of Chapter 11 to offer these same opportunities for smaller businesses.
The law took effect right before the shutdowns due to COVID. It provided relief opportunities for businesses with debt less than $2,725,625 to participate in a bankruptcy process that was streamlined and tailored to keeping the small business afloat during its debt restructuring. Prior to this subchapter being available, many small corporations could not access Chapter 11 bankruptcy proceedings because the process was too cumbersome and lengthy, so they ended up filing under Chapter 7 and dissolving the business.
Subchapter 5 Small Business Bankruptcy Attorneys
If your small business needs debt relief to keep operating, consulting with experienced bankruptcy attorneys is the smart move.
Because the process of bankruptcy requires intimate knowledge of the existing laws as well as the recent changes within this subchapter, attempting to navigate the court process without representation is not a sound decision.
While predatory lenders and collection agencies will make promises to restructure debt to trap small businesses into paying exorbitant settlements and loans, an experienced legal team can help steer you through these troubled economic waters and allow you to maintain your business during the process.
Benefits of Subchapter 5 Bankruptcy
There are numerous benefits to Subchapter 5 bankruptcy, including the following:
- Continued control and operation of the business: under the subchapter, you do not have to relinquish control of the business, and you can keep operating and as long as the disposable income is going to repay the debts.
- Independence from your creditors: a Subchapter V plan does not require creditor approval, and only the business can file the plan, which frees you from restrictions and gives you control over the process.
- Installments: this plan allows repayment of the debt in manageable installments, including delaying administrative costs.
- Specialized trustee: while you continue operating the business, a trustee will manage the court proceedings on your behalf so you can focus on the business.
- No disclosure statement: under the subchapter, no disclosure statement (detailing your business’ history, an extensive analysis of assets that can be liquidated, and a prospective repayment analysis) is necessary.
If your small business is currently struggling under massive debt, consulting with a bankruptcy attorney can provide you the relief you need to keep the business running.