SubChapter V Bankruptcy: What You Need to Know

Employee disinfecting table with mask on

With countless businesses struggling as a result of the COVID-19 virus, business owners have been doing their best to find solutions to their financial problems. One option that many businesses have simply glossed over is Chapter 11 bankruptcy. Below we shine some light on some of the little known benefits of Chapter 11 and outline which business owners stand to benefit the most.

Who Is Eligible?

Chapter 11 is available for individuals and businesses. Newly enacted Subchapter V of Chapter 11 is intended for and limited to small businesses, corporations, and partnerships who have found themselves in a place of financial difficulty. To be eligible, for Subchapter V, the business must have no more than $7,500,000 in secured and unsecured noncontingent, liquidated debts.

The Chapter 11 Process

Subchapter V of Chapter 11 has the power of traditional Chapter 11, in that a plan is created which can discharge debt completely and gain additional time to pay those debts which cannot be discharged. This does not necessarily require the liquidation of any assets or property to pay off debts. There are circumstances in which business owners can sell some or all of their assets to pay debts, but it is almost never the case in our experience.

Here is how the process works:

It all starts with the filing of the case and the proposition of a payment plan. In traditional Chapter 11, during the first 120 days of filling, the party filing has the exclusive right to propose their plan to reorganize their business. In Sub Chapter V the process is faster and less expensive as the Debtor must file its plan within 90 days unless the Court extends the deadline.

Next comes the confirmation of the plan itself. This includes a time where creditors are able to vote on the proposal. Once certain voting thresholds are reached, the plan may be confirmed by the court and becomes legally binding.

Once the plan is approved and finalized, the plan injunction replaces the automatic stay to ensure that any and all creditors and lenders are prohibited from interfering with the Debtor’s business operations and assets through collection actions.

The last step is simply business as usual. The filer is able to continue business operations while simultaneously discharging certain obligations and paying off the others as provided in the plan.

Benefits of a Chapter 11 Bankruptcy

There are several benefits of Chapter 11 that set it apart from other chapters of bankruptcy. One of the most notable benefits is that filers are not required to forfeit any of their property to pay off debts, unlike Chapter 7 bankruptcy.

Other benefits of Chapter 11 include:

  • Automatic stay, keeping any and all creditors and lenders from contacting you or attempting to collect on any debt you owe them
  • The ability to keep your business running to not only make your payments, but also continue earning income
  • High-interest rates can be lowered during the bankruptcy process
  • Your debt payments are reduced and spread out over a period of time tailored to your particular circumstances

Contact Our Los Angeles Bankruptcy Team Today

We understand that that running a business is not an easy task and continuing to run one during a worldwide pandemic has been nearly impossible for many. We are committed to providing personalized and experienced legal representation to help ensure you find the best way to gain financial independence. 

If you believe you qualify for a Chapter 11 bankruptcy, do not hesitate to contact us today through our website or give us a call at (310) 220-4147 to schedule your consultation today!