Subchapter V: A Closer Look at the “Small Business” Bankruptcy Process

For many companies that are struggling to stay afloat, pursuing a Subchapter V “small business” bankruptcy can provide a viable path toward regaining financial stability. Pursuing a Subchapter V bankruptcy involves reorganizing a company’s debts, similar to pursuing a traditional business bankruptcy under Chapter 11. However, the costs are significantly lower, and there are significantly fewer steps involved.

Is a Subchapter V small business bankruptcy right for your company? Find out from an experienced Miami bankruptcy lawyer at Edelboim Lieberman:

What Business Owners Need to Know About Subchapter V

While Subchapter V exists under Chapter 11—and while a Subchapter V bankruptcy is still technically a Chapter 11 filing—there are several major differences between small business bankruptcies under Subchapter V and traditional Chapter 11 reorganizations. These differences make pursuing reorganization under Subchapter V viable when pursuing a traditional Chapter 11 reorganization would be cost-prohibitive.

Here is a brief overview of the basics of a Subchapter V small business bankruptcy:

• “Small Business” – Businesses are generally eligible to file under Subchapter V if they have “aggregate noncontingent liquidated secured and unsecured debts” of no greater than $3,424,000 as of 2025. This is the primary criterion for qualifying as a “small business” under Chapter 11.
• “Projected Disposable Income” – Subchapter V reorganization plans focus on using the debtor’s “projected disposable income” to pay down its outstanding liabilities over a three- to five-year period. Projected disposable income is income which is not “reasonably necessary” for “the continuation, preservation or operation of the business.”
• Bankruptcy Trustee – In a traditional Chapter 11 case, the bankruptcy trustee can take possession of the debtor’s assets and investigate the debtor for possible mismanagement and other issues. In a Subchapter V case, the debtor remains in possession of its assets, and the trustee’s role is specifically to “facilitate the development of a consensual plan of reorganization.”
• Proposed Reorganization Plan – In Subchapter V cases, only the debtor is eligible to file a proposed reorganization plan. Creditors cannot file competing plans, and there is no unsecured creditors’ committee in a Subchapter V small business bankruptcy (unless the court orders otherwise). In traditional Chapter 11 cases, competing plans and creditors’ committees can both add costs, complications, and delays to the process.
• Creditor Consent Not Required – Not only are creditors ineligible to file competing plans in a Subchapter V case, but creditor consent is not required for approval of the debtor’s proposed reorganization plan. When a business files under Subchapter V, the bankruptcy court must approve the business’s plan as long as it is “fair and equitable.”
• Timeline – Due to the procedural differences between Subchapter V small business bankruptcies and traditional Chapter 11 business bankruptcies, the timeline of a Subchapter V case is significantly shorter. The median duration of a successful traditional Chapter 11 case is 10.4 months, while the median duration of a successful Subchapter V case is 6.6 months. Not only does this reduce the costs involved in the process, but it also allows eligible businesses to begin paying under their reorganization plans sooner as well.
• Equity Retention – The procedural differences between Subchapter V small business bankruptcies and traditional Chapter 11 business bankruptcies also mean that the business’s shareholders can retain their equity stakes without making additional capital contributions. This is a major benefit that makes Subchapter V filing significantly more attractive to many owners.

Subchapter V is designed to help facilitate the reorganization process for eligible small businesses, and the data suggest that it has largely served its intended purpose over its relatively short lifespan (Congress enacted Subchapter V in 2019). According to the U.S. Department of Justice (DOJ), Subchapter V filings have a significantly higher confirmation rate than traditional Chapter 11 filings (52 percent versus 23 percent) and a much lower dismissal rate (32 percent versus 53 percent).

Is a Subchapter V Bankruptcy Right for Your Business?

With these considerations in mind, is a Subchapter V bankruptcy right for your business? If your business is struggling and you are considering bankruptcy as a potential solution, here are some key questions to consider:

1. Does Your Business Qualify as a “Small Business” Under Subchapter V?

The first key consideration is whether your business qualifies as a “small business” under Subchapter V. While having “aggregate noncontingent liquidated secured and unsecured debts” of no greater than $3,424,000 is the primary criterion for Subchapter V eligibility, there are some qualifiers and caveats that apply. If you are interested in pursuing reorganization under Subchapter V, an experienced Miami bankruptcy lawyer will be able to assist with determining if your business qualifies.

2. Would Reorganizing Your Business’ Debts Provide the Financial Stability It Needs for the Future?

Beyond assessing your business’s eligibility, it will also be important to assess whether your business can achieve adequate financial stability through the Subchapter V reorganization process. Will reorganizing your company’s debts and devoting its “projected disposable income” to repayment be sufficient to maintain your business’s viability as a going concern? Or, will your business still struggle to make ends meet even with a favorable reorganization plan? An experienced Miami bankruptcy lawyer can assist with answering these questions as well.

3. Is a Subchapter V Bankruptcy the Best Option Under the Circumstances at Hand?

Finally, even if filing under Subchapter V is a viable option, it is still worth assessing whether it is the best option under the circumstances at hand. There are various potential alternatives to reorganizing a business’s debts through the bankruptcy process, and these alternatives can be both more efficient and more cost-effective in some cases.

Request a Free Consultation with a Miami Bankruptcy Lawyer at Edelboim Lieberman

If you would like more information about the eligibility criteria under Subchapter V and the benefits of pursuing a “small business” bankruptcy, we invite you to get in touch. To request a free consultation with a Miami bankruptcy lawyer at Edelboim Lieberman, please call 305-768-9909 or tell us how we can help online today.