Chapter 11 bankruptcy exists predominantly to help businesses restructure their debts. Historically, the code has favored the needs of large enterprises. If you don't run a multinational corporation, you might wonder if the law has simply forgotten about you.

The good news is that Congress made a notable update to bankruptcy law to better address the needs of small businesses. Subchapter V of Chapter 11 exists to help businesses that have debts of around $2.7 million or less.

If you run a small business, this may sound appealing. A bankruptcy attorney will want you to understand these three differences between Subchapter V and the more typical Chapter 11 process.

Reduced Creditor Power

One of the main reasons Congress reformed this part of the bankruptcy code was because of the inherent inefficiencies of the traditional Chapter 11 system. That system is still available, and it imposes fiduciary duties and the requirement of a disclosure statement on the debtor. Under Subchapter V, the debtor instead will provide the history of their business, an analysis of liquidation options, and a set of financial projects demonstrating how they'll play off the plan.

In traditional Chapter 11, creditors also have the power to review and vote on the proposed repayment plan. Under Subchapter V, a court-appointed trustee will help structure the plan while representing the interests of the creditors. This significantly streamlines the process.

Speed

Given streamlining is the name of the game, the Subchapter V process is faster. Likewise, petitioners need to get their plans to judge within 90 days of submitting their petitions. Petitioners can't seek extensions. Consequently, you will want to retain bankruptcy attorney services so you can keep up with the expected speed of the process.

Non-Consensual Option

Traditionally, bankruptcy courts have sought the consent of creditors before approving Chapter 11 restructuring plans. However, Subchapter V enables a non-consensual option even if the creditors hate the payment structure.

Consent is still an option. The main benefit to the debtor of gaining consent is it changes the timing of the discharge of the debts. If creditors consent, the judge will discharge the portion of the debt excluded from the restructuring upon acceptance of the plan. Conversely, the judge can't discharge the remaining debt in a non-consensual case until the debtor completes the payment schedule. If possible, you and your bankruptcy lawyer will want to try to gain the consent of the creditors.

Share