Small Business Bankruptcy & Subchapter V

Is Subchapter V Bankruptcy Right for Your Small Business?By Jim Shenwick, Esq. | Shenwick & AssociatesAt Shenwick & Associates, we are receiving an increasing number of calls from businesses in financial distress. Whether their liabilities exceed their assets, or they lack sufficient cash flow to service debt and cover operating expenses, these businesses are facing difficult decisions.Three Options for a Financially Distressed BusinessBusinesses in financial difficulty generally have three options:1. Do nothing and close the business;2. File a Chapter 7 bankruptcy and have the business liquidated by a Chapter 7 Bankruptcy Trustee; or3. File for Chapter 11 bankruptcy. Within Chapter 11, there are two paths: a traditional Chapter 11 filing, or a Subchapter V small business bankruptcy filing.Why Traditional Chapter 11 Is Often Not the AnswerFor most small businesses, traditional Chapter 11 is too complicated, costly, and time-consuming. Many businesses that file for Chapter 11 ultimately have their cases converted to a Chapter 7 liquidation ( leaving them no better off than if they had simply closed) or the case is dismissed.The Advantages of Subchapter VSubchapter V was designed specifically to give small businesses a more accessible and affordable path through bankruptcy. Key advantages include:• No U.S. Trustee (UST) fees. Unlike traditional Chapter 11, Subchapter V debtors are not required to pay quarterly UST fees.• No Absolute Priority Rule. The business owner is not required to pay creditors in strict priority order before retaining an ownership interest.• Owner may retain the business. If a Plan of Reorganization is confirmed, the debtor can retain ownership of the business.• Impaired creditors need not approve the Plan. The Plan can be confirmed without the affirmative vote of impaired creditors, provided certain conditions are met.• No Disclosure Statement required. Unlike traditional Chapter 11, a separate Disclosure Statement does not need to be filed with the Court.• The Plan may modify the rights of secured creditors holding claims secured by the debtor’s principal residence, which is a significant tool not available in traditional Chapter 11.Key Requirements of Subchapter VTo qualify and operate under Subchapter V, a business must meet several important requirements:• At least 50% of the debtor’s total debt must be business-related debt.• A Plan of Reorganization must be filed within 90 days of the bankruptcy filing.• The debtor must commit all projected disposable income to Plan payments.While the above is a brief overview, Subchapter V offers meaningful benefits for eligible small businesses seeking a viable path forward without the burden and expense of a traditional Chapter 11 case. Every business situation is unique, and a thorough analysis is required to determine whether Subchapter V is the right fit.
Contact UsIf you are a business owner, client, or advisor with questions about business bankruptcy or Subchapter V, please contact Jim Shenwick, Esq. for a consultation.Jim Shenwick, Esq.  |  Shenwick & AssociatesPhone: 917-363-3391   Email: [email protected]Schedule a call: Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15min

We help individuals and businesses with too much debt, as well as creditors in bankruptcy cases.