A new provision of the Bankruptcy Code covering small businesses took effect in February 2020. Referred to as “Subchapter V,” it provides a streamlined process for reorganization of businesses under a certain debt threshold. 11 U.S.C. §§1181-1191. As part of the CARES Act response to the coronavirus passed in March, Congress amended Subchapter V through March 2021 only, to raise the initial debt threshold of $2,725,625 to $7.5 million.
Within 90 days of a bankruptcy filing, Subchapter V debtors must file a plan providing for payments to creditors over a three to five-year period. The payments must equal the debtor’s “disposable income,” defined below. 11 U.S.C. §1191(d). Subchapter V eases or eliminates some of the critical hurdles faced by Chapter 11 debtors in confirming a plan. Under Subchapter V, normally no disclosure statement is required, no official creditors’ committee is formed, administrative expenses may be paid after a plan is confirmed, the debtor has an unlimited exclusive right to file a plan, and a vote of creditors is not required to confirm a plan. Also, unlike under Chapter 11, debtors may retain equity in their business without the consent of creditors even if creditors are not paid in full. This article focuses on issues revealed in case law since the law took effect.
Eligibility
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