Subchapter V Bankruptcy (And COVID-19)

Subchapter V bankruptcy was put into effect in February of 2020 amid the COVID-19 pandemic. While the subchapter was not created because of the pandemic its timing is nothing short of a blessing. Many small businesses need a quick bankruptcy solution and do not have the time to follow the traditional chapter 11 bankruptcy procedure. In this blog, we will discuss what subchapter V bankruptcy is, the filing process, the costs associated with it, how much time it takes to file, and its benefits.

Subchapter V bankruptcy also called the Small Business Reorganization Act of 2019 is most often the cheaper way of declaring small business bankruptcy. It’s a subchapter of chapter 11 bankruptcy. This is an option that should be considered for any business that believes they cannot weather the COVID-19 pandemic. Action should be taken as soon as this realization happens so you can see relief as soon as possible.

Eligibility

A business must be in engaging in commercial activity to be eligible for subchapter V bankruptcy. The total unsecured and secured debt must be less than $7,500,000. This is due to COVID-19 and this will be the allowed maximum debt through March of 2021.

Required Documents For Filing

  • Balance sheet
  • Statement of operations
  • Cash flow statement
  • Federal income tax return

Additional Documents You Will Need

  • Bank statements

Key Benefits:

  • Business owners do not need to file a disclosure statement
  • No UST fees throughout the case
  • Faster approval and relief for debtors
  • No fees other than the filing fee
  • No creditor committee

While there is no creditor’s committee, there is a subchapter V trustee who works in collaboration with the debtor and can act as a liaison with the creditor constituency. If one creditor does not agree the debtor can file an application to the Bankruptcy Court so the judge can force approval. This is called a “cram down” and the way to make this happen is to make your repayment plan more appealing to creditors than a chapter 7 liquidation.

Timeline

Compared to chapter 11 subchapter V bankruptcy moves extremely fast. There will be a hearing 60 days after filing. At least 14 days prior to that hearing the debtor must show proof they have made efforts to or are making efforts to come to a mutual agreement with creditors regarding their repayment plan. As previously mentioned, the debtor does not need to file a disclosure statement, a statement showing all facets of a business that creditors will use to approve or deny a plan. This expedites the subchapter V process tremendously since no one is disputing whether they want to approve a bankruptcy plan. Instead, a debtor will need to file statements regarding their business operations, a liquidation analysis, and future revenue projections.

Call For A Consultation

Subchapter V bankruptcy is a more complex and expedited process that should be handled by a bankruptcy attorney. At Jennis Law we are committed to helping Tampa Bay businesses successfully file bankruptcy, get out of debt, and preserve their livelihood. Contact us online or by phone at (813) 229-2800.