Written by Jaime Leggett, Esq.

Many smaller businesses face substantial financial troubles, but think that their legal options are limited. However, the results of Subchapter V are showing that not to be the case. Rather, Subchapter V is proving to be a cost-effective and efficient option, allowing businesses to address their debts more quickly while remaining in control, as revealed by, an April 19, 2024 report from leading organization the American Bankruptcy Institute (ABI). Subchapter V is open to businesses with less than $7.5 million in debts, and for them, it is a better alternative to the traditional Chapter 11 process.

Note that the current $7.5 million debt limit is set to expire on June 21, 2024, at which point it would decrease to about $2.75 million unless Congress takes action. Businesses should consider their bankruptcy options in advance of the expiration date as Congress may or may not keep the current debt limit.

The ABI issued these findings after numerous public hearings, testimony from over 40 witnesses, roundtable discussions with trade groups, a nationwide survey, and case data from the U.S. Trustee’s Office, the Federal Judicial Center, and court filings.

Key Findings of the ABI’s report:

Higher Success Rate and Swifter Reorganization:

Twice as many small businesses successfully restructured their debt using Subchapter V as compared to traditional Chapter 11.
Approximately 50% of Subchapter V debtors confirm reorganization plans, about double the success rate of small businesses using traditional Chapter 11.
86% of companies that confirmed plans through Subchapter V were still operating as of December 2023.
Subchapter V debtors tend to confirm a reorganization plan within about 6 months of filing, while traditional Chapter 11 cases tend to take about 10 months.

Cost Efficiency:

Subchapter V cases tend to be more affordable. For example, in the Northern District of California, the Subchapter V professional fees were $145,790 on average, which is about $500,000 less than the non-Subchapter V Chapter 11 cases.


The Small Business Reorganization Act, which became effective in February 2020, created Subchapter V of Chapter 11 of the Bankruptcy Code. In March 2020, the CARES Act raised the debt limit for Subchapter V eligibility to $7.5 million from about $2.7 million, and Congress extended that increase in June 2022 through June 21, 2024.

Some highlights of Subchapter V:

  1. Consent Not Required: In a traditional Chapter 11 case, plan confirmation requires the consent of at least one impaired class of creditors. Under Subchapter V, a debtor can propose a plan impairing any and all creditors without obtaining any consent to do so.
  2. Can Keep Equity: Under Subchapter V, a debtor’s shareholders can retain their equity without providing any new value, reducing the reorganization’s cost to them.
  3. Reduced Disclosure: In a Subchapter V case, a debtor does not need to prepare and submit a full disclosure statement, which can require substantial legal costs and information about the debtor and the plan.
  4. Increased Retention of Control: In a Subchapter V case, a debtor has the exclusive right to file a reorganization plan, preventing other parties from proposing their own reorganization or liquidation of the debtor.
  5. Distribution of Projected Disposable Income: A Subchapter V plan must provide for the distribution of all of the debtor’s “projected disposable income” over a three- to five-year term, which is defined for businesses as all income “not reasonably necessary” for “the continuation, preservation, or operation of the business.”

Conclusion: Per the ABI’s report, “Subchapter V has already proven to be successful in saving smaller businesses.” Businesses facing financial difficulties should consider whether a bankruptcy process would help them address their debts head-on while remaining in operation and providing them with a path forward to viability.

Disclaimer: This document is intended for general informational purposes only and does not constitute legal advice. Please consult with a legal professional regarding your specific situation.

Alt Text: Twice as many small businesses have successfully navigated their debt restructuring using Subchapter V of the Bankruptcy Code compared to those that relied on a more complex process under Chapter 11, a new study found. ( Click here to learn more about Bast Amron’s Bankruptcy practice.


Jaime Leggett practices in the areas of bankruptcy and complex commercial litigation. His experience includes investigating and prosecuting director and officer liability claims; representing trustees, creditors, equity holders, and debtors in bankruptcy proceedings along with assignees, creditors, and assignors in assignment for the benefit of creditors proceedings; federal and state court commercial litigation; and trials in federal, bankruptcy, and state courts nationwide.

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