The small business restructuring process most owners are asking about is Subchapter V of Chapter 11, a streamlined bankruptcy track created by the Small Business Reorganization Act of 2019 for companies with up to $3,424,000 in qualifying debt.1Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases You file a petition, keep running the business as a debtor in possession, work with an appointed trustee, and submit a reorganization plan within 90 days. The filing fee is $1,738,2United States Courts. Bankruptcy Court Miscellaneous Fee Schedule and professional fees typically account for most of the actual cost.
Whether Your Business Qualifies
Three things decide eligibility: the nature of the business, the composition of the debt, and the total amount owed. The debtor has to be a person or entity engaged in commercial or business activities, and at least half of the total debt must come from those activities rather than personal borrowing.3U.S. Department of Justice. U.S. Trustee Program – Subchapter V Total noncontingent, liquidated debts, both secured and unsecured, cannot exceed $3,424,000 on the petition date.1Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases That cap was raised from $3,024,725 effective April 1, 2025. Debts owed to insiders — relatives, business partners, officers, directors — are excluded when you run the numbers.
Two categories are shut out. Single asset real estate operations, where one property produces almost all the income, cannot use Subchapter V. Neither can publicly traded companies or their affiliates.3U.S. Department of Justice. U.S. Trustee Program – Subchapter V Sole proprietors and other individual business owners can file, as long as they meet the same debt cap and 50-percent business-debt threshold. Eligibility is measured as of the filing date, so shifts in the debt mix afterward do not matter.
What You File to Start the Case
The petition itself is Official Form 201, the voluntary petition for non-individuals, which asks about the nature of the business and estimated numbers for creditors, assets, and liabilities.4United States Courts. Voluntary Petition for Non-Individuals Filing for Bankruptcy False statements carry fines up to $500,000 and up to 20 years in prison.5United States Courts. Official Form 201 – Voluntary Petition for Non-Individuals Filing for Bankruptcy
Along with the petition, you file the most recent balance sheet, a statement of operations, a cash-flow statement, and the most recent federal income tax return.6Justia. Subchapter V of Chapter 11 Bankruptcy If any of these documents does not exist, which is common for smaller businesses without formal accounting, you submit a sworn declaration saying so. Non-individual debtors also file the Form 206 series of schedules, listing every asset and every debt, identifying each creditor by name and address, and categorizing each debt by whether the amount is fixed, disputed, or contingent on a future event. A list of equity security holders identifies the owners or partners.
What Happens After You File
Filing triggers an automatic stay that stops collection activity against the business.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Creditors cannot file new lawsuits, continue existing ones, garnish accounts, or foreclose while the case is pending. That breathing room is the most immediate practical benefit of filing.
You continue running the business as a debtor in possession, keeping existing management in place and retaining the rights and powers of a trustee.8Office of the Law Revision Counsel. 11 USC 1184 – Rights and Powers of a Debtor in Possession The court can remove you for cause, but that takes a motion and a showing of fraud, gross mismanagement, or similar serious problems. The U.S. Trustee appoints a Subchapter V trustee whose role is to help you develop a workable plan and mediate between the business and its creditors, not to take over the company.9Office of the Law Revision Counsel. 11 USC 1183 – Trustee
Two features of standard Chapter 11 do not apply here, and they matter for cost and control. There is no creditors’ committee unless the court specifically orders one, and there is no separate disclosure statement to prepare and defend before creditors can vote.10Office of the Law Revision Counsel. 11 USC 1181 – Inapplicability of Other Sections Only the debtor can file a reorganization plan; creditors cannot propose a competing one.
Within 60 days of filing, the court holds a mandatory status conference. At least 14 days before it, you file a written report describing what you have done toward a plan and what obstacles you are facing.11Office of the Law Revision Counsel. 11 USC 1188 – Status Conference The Subchapter V trustee attends and participates. Throughout the case, you file monthly operating reports covering post-petition income and expenses so the court can see whether the business remains viable enough to reorganize.
The 90-Day Plan Deadline
You have 90 days from the filing date to submit a reorganization plan.12Office of the Law Revision Counsel. 11 USC 1189 – Filing of the Plan That is dramatically shorter than standard Chapter 11, where the process can stretch a year or more. The court can extend the window, but only when the delay stems from circumstances you should not fairly be blamed for. Being unprepared is not a valid reason.
The plan sorts creditors into classes — secured, unsecured, priority claims like unpaid wages or taxes — and defines the treatment each class will receive and where the money for repayment will come from. Courts scrutinize whether projected revenue and expenses actually support the proposed payment schedule. Optimistic numbers without support do not survive.
Getting the Plan Confirmed
The cleanest path is a consensual plan, meaning every class of impaired creditors votes to accept it. The court confirms it under 11 U.S.C. § 1191(a), and most pre-petition debts are discharged as soon as the plan is confirmed.
If a class rejects the plan, you can still force confirmation through a cramdown under § 1191(b). The plan has to be “fair and equitable,” which in practice means it cannot unfairly favor one class over another and you must commit all projected disposable income for a period of three to five years, set by the court, toward plan payments.13Office of the Law Revision Counsel. 11 USC 1191 – Confirmation of Plan Disposable income is whatever the business earns that is not reasonably necessary for operating expenses. The court also has to find you can realistically make the payments; if that showing cannot be made outright, the plan needs fallback protections for creditors, such as liquidation of certain assets, in case payments fall short.
One point worth understanding before you file: Subchapter V drops the absolute priority rule that governs standard Chapter 11.13Office of the Law Revision Counsel. 11 USC 1191 – Confirmation of Plan Owners can keep their equity even when creditors are not paid in full, as long as the plan commits projected disposable income to payments. That is the structural reason the process works for businesses whose value is largely tied to the people running them.
When Discharge Arrives and What Survives
Timing depends on which confirmation path the plan took. Under a consensual § 1191(a) plan, the standard Chapter 11 discharge rules apply and most pre-petition debts are discharged when the plan is confirmed. Under a cramdown § 1191(b) plan, you first have to complete all payments due during the three-to-five-year plan period; the discharge follows.14Office of the Law Revision Counsel. 11 USC 1192 – Discharge The practical difference is large. A consensual plan gives immediate legal relief and a clean balance sheet going forward. A cramdown means years of court oversight before discharge.
Not everything is wiped away. For individual debtors under a cramdown, the § 523(a) categories of non-dischargeable debt survive: fraud, unfiled or fraudulent tax returns, alimony and child support, willful and malicious injury, most student loans, government fines and penalties, and debts from intoxicated operation of a vehicle.15Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge Debts you failed to list in your schedules may also survive. For corporate or LLC debtors, § 523(a) applies by its terms to individual debtors, so entity debtors in Subchapter V generally receive a broader discharge, though courts have disagreed on how far this reaches in the cramdown context.
Tax Treatment of Discharged Debt
Forgiven debt is normally taxable income. Bankruptcy is a critical exception: debt discharged in a Title 11 case, including Subchapter V, is excluded from gross income.16Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments The tradeoff is that you have to reduce certain “tax attributes” — items like net operating losses, credit carryovers, capital loss carryovers, and the tax basis of your property — that would otherwise lower future tax bills. You report the reductions on IRS Form 982, attached to the return for the year the debt was discharged.17Internal Revenue Service. Instructions for Form 982 You can also elect to reduce the basis of depreciable property first instead of following the default order, which sometimes produces a better result depending on the mix of assets and carryovers. Talk this through with a tax advisor before filing the return, because the election affects depreciation and gain calculations for years afterward.
If the Plan Fails
Not every case ends in a successful reorganization. If a confirmed plan needs adjustments, the statute allows modification. For consensual plans, modification is available any time after confirmation but before the plan has been substantially consummated — before property has transferred, distributions have begun, and operations under the new terms are underway. For cramdown plans, you can seek modification within the three-to-five-year plan window.18Office of the Law Revision Counsel. 11 USC 1193 – Modification of Plan Either way, the modified plan must still meet all the original confirmation requirements, and the court has to find that circumstances genuinely warrant the change.
More serious problems can lead to conversion to Chapter 7 liquidation. Courts have ordered conversion for bad faith conduct like hiding assets or filing inaccurate schedules, gross mismanagement such as unaccounted-for cash withdrawals, repeated failure to get a plan confirmed, and inability to show the business can realistically be rehabilitated. When weighing conversion against dismissal, courts generally prefer conversion if dismissal would leave creditors with nothing or would just invite a refiling.
What the Whole Thing Costs
The filing fee is $1,738.2United States Courts. Bankruptcy Court Miscellaneous Fee Schedule Beyond that, the two largest expenses are the Subchapter V trustee’s compensation and attorney fees.
The Subchapter V trustee is paid hourly for actual, necessary services, not as a percentage of plan payments or disbursements. The court reviews fee applications for reasonableness before approving payment from the estate. In a straightforward case, where the trustee mainly facilitates plan negotiations and monitors a few distributions, fees can be modest. In contested cases requiring investigation or litigation, they climb significantly.
Attorney fees vary widely based on the complexity of the business, the number of creditors, and whether the plan is consensual or requires a cramdown fight. Bankruptcy attorneys handling small business Chapter 11 work typically charge hourly rates ranging from roughly $250 to $500, with total costs for simpler matters running in the low five figures and complex cases running considerably more. Accountants and financial advisors involved in preparing projections, reviewing operations, or advising on the plan typically charge $150 to $500 per hour. All professional fees require court approval before they are paid from the estate, which provides some check on runaway costs without eliminating them. The absence of a creditors’ committee in most Subchapter V cases removes what is often the single largest professional-fee line item in standard Chapter 11, and that structural saving is the main reason the process is financially viable for businesses this size.