Many small business owners and entrepreneurs in Nebraska face overwhelming financial challenges. If you are a sole proprietor or small business owner struggling with business debt, you might have heard about bankruptcy options but felt unsure which path fits your needs. One option designed specifically for smaller businesses is Subchapter V bankruptcy—a streamlined alternative to the traditional Chapter 11 process.
If you need guidance now, do not hesitate to reach out for personalized help from Lentz Law, PC, LLO. Contact us today through our online contact form or call (402) 526-5540 to discuss your options.
What is Subchapter V Bankruptcy?
Subchapter V is a specific section of Chapter 11 bankruptcy that was introduced by the Small Business Reorganization Act of 2019 (SBRA). Think of it as a simplified version of Chapter 11, designed to be less costly and more efficient for small businesses.
While a traditional Chapter 11 case can be very complex and time-consuming, Subchapter V was created to address the unique needs of smaller enterprises. The goal is to allow business owners to propose a plan to repay their debts over a period of three to five years, while staying in business and maintaining control of their company.
The process under Subchapter V is tailored to make reorganization more accessible. Instead of the extensive administrative requirements and large legal fees often associated with a standard Chapter 11, Subchapter V streamlines many of the steps. This can make a huge difference for a business that is already facing financial strain. It lets owners focus on restructuring their debt and getting their business back on solid ground.
Who is Eligible for Subchapter V?
Subchapter V isn't for every business. There are specific eligibility requirements that a debtor must meet to qualify for this option. These criteria ensure that the process remains focused on the small businesses it was designed to help. To be eligible for a Subchapter V bankruptcy filing, a business or individual must meet the following criteria:
- The business must be "engaged in commercial or business activities."
- The total debt, which includes both secured and unsecured debts, cannot exceed a certain limit. The current debt limit is subject to change, so it is important to confirm the current amount with a legal professional.
- At least 50% of the total debt must come from the business activities.
It is important to note that this option is available to various business structures, including corporations, partnerships, and even sole proprietors. For individuals who are struggling with both personal and business debts, as long as the business-related debt makes up more than 50% of the total, Subchapter V may be a viable path. This can be an incredibly useful tool for entrepreneurs who have personally guaranteed business loans or credit lines and are now facing the consequences.
If you believe your business may fit these qualifications, a conversation with an experienced bankruptcy attorney can help you determine if it is the right step for you. The requirements can be complex, and a professional can provide the guidance needed to make an informed decision.
The Benefits of a Subchapter V Filing
For small business owners and entrepreneurs in Nebraska, Subchapter V offers a number of distinct advantages over a traditional Chapter 11. These benefits are specifically designed to make the reorganization process more straightforward and to increase the likelihood of a successful outcome. Some of the key benefits of Subchapter V bankruptcy include:
- No Creditors' Committee: In a traditional Chapter 11, a committee of unsecured creditors is typically formed. This committee can add significant time and expense to the case. In Subchapter V, a creditors' committee is not appointed, which helps to keep costs down and the process moving forward.
- Reduced Administrative Costs: With a more streamlined process and fewer administrative requirements, the overall costs of a Subchapter V filing are generally lower than a standard Chapter 11. This helps to preserve the business’s remaining resources and makes the entire process more affordable.
- Retaining Ownership: Unlike a traditional Chapter 11 where the "absolute priority rule" can sometimes force business owners to give up their equity, Subchapter V offers a more flexible path. This allows business owners to keep their stake in the company even if unsecured creditors are not paid in full, provided the reorganization plan is fair and equitable.
- Debtor-Exclusive Plan Period: In a Subchapter V case, only the debtor can propose a plan of reorganization. This gives the business owner more control over their future and prevents creditors from proposing their own competing plans, which can sometimes be unfavorable to the business.
These features make Subchapter V a more attractive and practical option for many small businesses and individuals with business debt who need a way to reorganize without the burden of a full Chapter 11 case. For a detailed explanation of the differences between the options, visit our page on Chapter 11 Subchapter V Bankruptcy.
The Subchapter V Process Explained
The process of filing for Subchapter V is designed to be more efficient than a regular Chapter 11. While it still involves legal procedures and court oversight, it's structured to reach a resolution faster and with less complication. Here's a general overview of the steps involved:
- File the Petition: The process begins by filing a bankruptcy petition with the court, along with other required paperwork that provides a detailed overview of the business's finances.
- Appointed Trustee: Unlike a standard Chapter 11, a Subchapter V trustee is appointed in every case. However, this trustee does not run the business. Instead, their role is to facilitate the process and help the parties reach an agreement, which can be an immense benefit.
- The Reorganization Plan: Within 90 days of filing, the debtor must submit a reorganization plan. This plan outlines how the business will repay its debts over the next three to five years. The court will then hold a confirmation hearing to determine if the plan is fair, feasible, and meets the requirements of the bankruptcy code.
- No Voting on the Plan: A significant difference in Subchapter V is that creditor voting on the plan is not required. While creditors can still object, the court can still confirm the plan as long as it meets the "fair and equitable" standard, which generally means it must use all of the business's projected disposable income over the plan's duration to make payments to creditors.
This more streamlined process, which includes a more limited role for the trustee and the lack of a creditor vote, is what makes Subchapter V an appealing alternative for many small businesses. It provides a clearer and more direct path to reorganization.
A New Beginning for Your Business in Nebraska
Navigating financial challenges can be one of the most difficult experiences a business owner can face. The goal of Subchapter V is to provide a viable solution for small businesses and entrepreneurs who are determined to get back on their feet. It offers a way to restructure debt, keep your business running, and build a more stable future without the long, expensive, and often complex burdens of a traditional Chapter 11.
If you are a small business owner or an entrepreneur struggling with debt in Nebraska, it is important to explore all of your options. Subchapter V bankruptcy may be the right solution to help you regain control and build a more stable financial foundation for your business.
Our team at Lentz Law, PC, LLO is here to provide you with the information you need and guide you through the process. Contact us today to schedule a confidential discussion about your specific circumstances by calling (402) 526-5540 or by visiting our online contact form.