Subchapter V vs. Chapter 11 Bankruptcy: What Small Business Owners Need to Know

If your small business is overwhelmed with debt, you may be considering business bankruptcy. Two common options are traditional Chapter 11 bankruptcy and the newer Subchapter V bankruptcy. Both fall under Chapter 11 of the Bankruptcy Code, but they work very differently — especially when it comes to eligibility, cost, trustee involvement, plan approval, and timing.

At Bankruptcy Near Me, our experienced bankruptcy attorneys in California and Maryland help small businesses understand which option is right for them. Here’s what you should know.

Who Qualifies for Subchapter V Bankruptcy?

• Subchapter V is only available to small business debtors — individuals or businesses with less than $7.5 million in debt, with at least half of that debt tied to business activities.

  • Example: A restaurant in Santa Ana, California struggling with rent, vendor, and tax debt may qualify.

• Traditional Chapter 11 has no debt limit and is often used by large corporations, partnerships, or individuals with very high debts.

Process and Cost Differences

• Subchapter V Bankruptcy is designed to be faster and less expensive than Chapter 11.

  • No mandatory creditors’ committee (unless the court orders one).

  • No disclosure statement requirement.

  • No quarterly U.S. Trustee fees.

  • Debtor must file a plan within 90 days, and a status conference is held within 60 days.

• Chapter 11 Bankruptcy, by contrast, is slower and more expensive, often taking years to resolve. It usually requires a disclosure statement, creditors’ committee, and more litigation.

Role of the Trustee

• In Subchapter V, a trustee is automatically appointed to help negotiate and facilitate reorganization. However, the business owner stays in control of operations.

• In traditional Chapter 11, a trustee is only appointed in rare cases of fraud or mismanagement — otherwise, the debtor remains in possession.

Plan Confirmation Standards

• In Subchapter V cases, creditors do not have to approve the plan. The court can confirm a plan if it is “fair and feasible.” This makes it much easier for small business owners to move forward.

• In Chapter 11 cases, at least one impaired class of creditors must accept the plan, which can give creditors more leverage.

Why Subchapter V May Be Better for Small Businesses

For many small businesses in Orange County, CA and Montgomery County, MD, Subchapter V is often the better choice because:

• It is faster and less expensive.

• The debtor keeps more control over the process.

• Owners can restructure while keeping the business open.

• Creditors have less power to block repayment plans.

Traditional Chapter 11 may still be the right choice for larger businesses or those with more complex debt structures.

Subchapter V vs. Chapter 11 Bankruptcy: Quick Comparison

Feature Subchapter V Traditional Chapter 11

Eligibility Small businesses with under $7.5M debt Any business or high-debt individual

Cost Lower, streamlined Higher, more complex

Plan Filing Deadline 90 days Flexible (often years), but recommended earlier

Creditor Approval Not required if plan is fair At least one impaired class must approve

Trustee Always appointed Rarely appointed

Best For Small businesses in CA & MD Large corporations or complex cases

Local Guidance: California and Maryland Subchapter V Bankruptcy Attorneys

At Bankruptcy Near Me, we specialize in helping small business owners in California and Maryland navigate Subchapter V and Chapter 11.

📍 California Office – Santa Ana, Orange County, Los Angeles
Serving Anaheim, Irvine, Garden Grove, Torrence, Los Angeles and all of Southern California.

📍 Maryland Office – Kensington, Montgomery County
Serving Rockville, Silver Spring, Bethesda and all of Maryland

Our lead attorney, Iris Kwon, is widely recognized as one of the best bankruptcy attorneys in both California and Maryland for small business reorganizations.

Call Today for a Free Consultation

If your business is struggling, don’t wait. The sooner you act, the more options you may have.

📞 California Office: 714-798-2544
📞 Maryland Office: 301-550-5408
📧 Email: info@bankruptcynearme.org

At Bankruptcy Near Me, we’ll walk you through every step — in plain language — so you can protect your business and get the fresh start you deserve.