Bankruptcy ✦ Subchapter V
Chapter 11 Power, Built to Small Business Scale.
Subchapter V is the version of Chapter 11 that a small California business can actually afford: no creditors’ committee, no competing plans, no absolute priority rule, a plan due in 90 days, and the owner keeps the company. North Star Law Firm prepares the case the way the court and the Subchapter V trustee expect to see it, with projections built by a forensic accountant rather than a hopeful spreadsheet.
Eligibility
Does your business qualify?
Subchapter V of Chapter 11 (11 U.S.C. §§ 1181 to 1195) is available to a person or entity engaged in commercial or business activity whose total noncontingent, liquidated secured and unsecured debt is under the statutory cap, currently $3,424,000 for cases filed on or after April 1, 2025, with at least half of that debt arising from business activity. Single-asset real estate debtors are excluded. The debtor can be a corporation, an LLC, a partnership, or an individual owner whose debts are mostly business debts, including personal guaranties of the company’s loans and leases.
- Debt cap of $3,424,000, not counting debts to insiders or affiliates
- At least 50 percent of debt from commercial or business activity
- Corporations, LLCs, partnerships, and individual owners all eligible
- The business must be operating or have been operating; a shell with no activity does not qualify
- Owners with personal guaranties can often file alongside the entity
- No creditors’ committee unless the court orders one for cause
The Difference
What makes Subchapter V better for owners?
The Small Business Reorganization Act of 2019 removed the features of traditional Chapter 11 that made it unworkable below a few million dollars in debt. Side by side, the differences are what let a small company reorganize instead of liquidate.
| Traditional Chapter 11 | Subchapter V | |
|---|---|---|
| Who proposes the plan | Debtor first, then creditors can file competing plans | Only the debtor |
| Deadline for the plan | Flexible, often a year or more | 90 days from the petition date (§ 1189(b)) |
| Creditors’ committee | Usually appointed, paid by the estate | None unless the court orders it |
| Disclosure statement | Required, separately approved | Not required; the plan carries the disclosures |
| Absolute priority rule | Owners lose their equity unless unsecured creditors are paid in full or contribute new value | Does not apply; owners keep their equity if the plan commits projected disposable income (§ 1191(c)) |
| Trustee | None; the debtor operates as debtor in possession | A Subchapter V trustee facilitates a consensual plan and monitors, but the debtor stays in control |
| Confirmation without creditor votes | Requires at least one accepting impaired class | Possible with no accepting class if the plan is fair, equitable, and does not discriminate unfairly |
What does a Subchapter V plan look like?
A plan commits the debtor’s projected disposable income, meaning what is left after the expenses needed to keep the business running and support the owner, for three to five years, and distributes it to creditors in the order the Code requires. Administrative claims and priority tax (including payroll tax the business fell behind on) are paid over the plan; secured creditors are paid the value of their collateral, sometimes on rewritten terms; unsecured creditors share the rest. If every class accepts, the discharge is entered at confirmation. If the plan is confirmed over objection, the discharge comes when the payments are complete.
The plan lives or dies on the projections. The Subchapter V trustee, the U.S. Trustee’s office, and the judge will all read them, and they have seen thousands. Ours are built by a forensic accountant from the company’s actual books, stress-tested for the scenarios the objecting creditor will raise, and reconciled to the monthly operating reports the case will require. That is the difference between a plan that confirms in four months and one that limps along until conversion.
Why it fits California businesses
The Inland Empire economy runs on logistics, construction, trucking, restaurants, medical practices, and staffing companies, exactly the businesses with lender debt, equipment leases, landlord claims, and SBA loans that Subchapter V was written for. A California-specific issue we see constantly: the business owes the EDD for payroll tax or the CDTFA for sales tax collected from customers. Trust fund taxes are not discharged, and the owner is personally liable for them, but a Subchapter V plan can pay them over five years without the levies and license holds that come with owing them outside of bankruptcy.
The other recurring fact pattern is the COVID-era EIDL: a loan the business cannot service, a personal guaranty on the owner, and Treasury offset already taking the owner’s tax refunds. Subchapter V restructures the SBA claim on the business side, and the owner’s guaranty is addressed in the same engagement, either in the entity’s plan or in a companion individual case.
Ninety days is a sprint. Start in shape.
The 90-day plan deadline runs from the petition date, and the first status conference is set within 60 days. That means the financial work has to be substantially done before the case is filed: a cash-flow budget for the first 13 weeks, a valuation of the collateral, a classification of every claim, and a draft plan. We do that work pre-petition, which also lets us test whether Subchapter V is the right tool at all. Sometimes it is not: a workout with the lender, an SBA offer in compromise, or an orderly wind-down with a Chapter 7 for the owner costs less and ends sooner. You will hear that analysis before you spend anything on a filing.
The Attorney-CPA Difference
The plan is a financial model wearing a court caption.
- Projections and 13-week cash flows built from the actual books by a forensic accountant
- Payroll tax, sales tax, and SBA claims classified correctly and paid on terms the plan can bear
- Owner’s personal guaranty exposure handled in the same engagement
- Representation in the Riverside Division and throughout the Central District of California
Questions & Answers
Subchapter V questions, answered
Can I keep running the business during the case?
Yes. You remain the debtor in possession and keep operating, paying ordinary-course expenses without court approval. Transactions outside the ordinary course, such as selling equipment or borrowing, need court permission.
What does Subchapter V cost compared to a regular Chapter 11?
A fraction. No committee counsel, no separate disclosure statement, a compressed timeline, and a trustee whose fees are modest. We quote the attorney fee based on the complexity of the business and the number of creditor classes, and the court filing fee is fixed.
My debt is over the cap. Do I have any options?
A traditional Chapter 11 is still available, and for an individual owner whose debts are mostly personal, Chapter 13 may fit if the debt is within its limits. We evaluate which chapter, if any, is the right tool.
What happens to my personal guaranty of the business’s SBA loan?
The entity’s plan restructures the SBA’s claim against the business. Your guaranty is a separate obligation, and depending on the numbers it is handled through a companion Chapter 7 or 13 for you personally, a negotiated release as part of the plan, or an SBA offer in compromise after the business case concludes.
Ninety days to a plan. Three years to daylight. You keep the keys.
A free business debt review with an attorney-CPA, and a written fee before you commit to a filing.