What Is Subchapter V Bankruptcy? A Step-by-Step Guide for Small Business Owners
When small businesses face overwhelming debt, traditional Chapter 11 bankruptcy can feel too complicated, expensive, and time-consuming. To address these challenges, Congress created Subchapter V of Chapter 11 under the Small Business Reorganization Act of 2019 (SBRA). This streamlined process, effective since February 19, 2020, gives small business debtors a faster, more affordable way to restructure debt while continuing to operate.
In this post, we’ll explain:
What Subchapter V bankruptcy is
Who qualifies to file
The steps and procedures in a typical case
How the process ends
Purpose of Subchapter V
The goal of Subchapter V is to help small businesses survive financial difficulties without being crushed by the high costs and delays of traditional Chapter 11. Instead of liquidation, Subchapter V is designed to:
Keep the business open
Allow owners to remain in control
Provide greater returns to creditors
Promote long-term economic stability
Courts across the country have recognized this intent, emphasizing that Subchapter V is meant to be an expedited, debtor-friendly process that balances the needs of both debtors and creditors.
Who Is Eligible?
Not every business can file under Subchapter V. To qualify, the debtor must:
Be engaged in commercial or business activity
Owe no more than about $3.02 million in debt (as of 2024, adjusted for inflation)
At least 50% of debts must arise from business activity
(Note: During the COVID-19 pandemic, the debt cap was temporarily raised to $7.5 million under the CARES Act, but that provision has since expired.)
The business must also elect Subchapter V status at the time of filing. If no election is made, the case proceeds as a standard Chapter 11.
Key Features of Subchapter V
Several features distinguish Subchapter V from regular Chapter 11:
Subchapter V Trustee – Every case has a trustee, but unlike Chapter 11, the trustee does not take over the business. Instead, the trustee helps the debtor and creditors reach agreement and ensures compliance.
Debtor Remains in Control – Owners stay in possession of assets and continue to operate the business, unless the court removes them for misconduct.
No Disclosure Statement – Unlike Chapter 11, there is no mandatory disclosure statement, reducing paperwork and legal costs.
No Absolute Priority Rule – Owners can keep their business even if creditors are not paid in full, so long as disposable income is committed to the repayment plan.
Lower Costs – There are no quarterly U.S. Trustee fees, and the simplified process typically reduces attorney’s fees.
Steps in a Subchapter V Bankruptcy
Here’s what the process usually looks like:
Filing the Petition – The debtor files a voluntary petition in bankruptcy court and elects Subchapter V treatment.
Automatic Stay – Creditors must stop collection efforts immediately, giving the debtor breathing room.
Trustee Appointment – A Subchapter V trustee is assigned to oversee the case.
Status Conference (within 60 days) – The court holds a conference to review the case and set deadlines.
Plan of Reorganization (within 90 days) – Only the debtor can file a plan, which must outline how creditors will be paid over a 3–5 year period.
Plan Confirmation – The court may approve the plan even without creditor consent if it is “fair and equitable” and commits disposable income to repayment.
Implementation – The debtor makes payments under the plan, usually monitored by the trustee.
When Does the Case End?
A Subchapter V case can end in several ways:
Plan Completion – The debtor successfully makes all payments, and debts are discharged.
Plan Confirmation with Early Discharge – In consensual cases, some debts may be discharged once the plan is confirmed.
Conversion or Dismissal – If the debtor fails to file a plan or comply with court orders, the case can be converted to Chapter 7 (liquidation) or dismissed.
Why Subchapter V Matters
For small businesses struggling with debt, Subchapter V can be a lifeline. It preserves ownership, reduces costs, and increases the chances of survival compared to traditional Chapter 11. Employees, suppliers, and customers also benefit when a business reorganizes rather than shuts down.
Final Thoughts
Filing bankruptcy is a serious decision, but Subchapter V offers hope to small business owners facing financial challenges. With its streamlined process, debtor-friendly rules, and cost-saving measures, it provides a practical path toward stability and recovery.
If you’re considering filing under Subchapter V, consult with an experienced bankruptcy attorney who can guide you through the process and protect your interests.