Subchapter V: How it Can Rescue Small Businesses
in this Time of Crisis

According to the Small Business Administration, 99.9% of all businesses in the United States are small businesses — that is, business establishments with less than 100 employees. The COVID-19 pandemic has led to widespread shutdowns, thus, affecting countless small businesses across the country. Subchapter V bankruptcy was put in place to help small businesses get relief during the coronavirus pandemic.

If your business has been affected by coronavirus shutdowns and you are struggling with debt, filing for bankruptcy may help you find some relief. Our attorneys at The Orantes Law Firm are committed to offering experienced legal guidance to business owners in bankruptcy-related matters. We can answer all of your questions about the process of filing for bankruptcy and how Subchapter V can rescue your business during these unprecedented times. We proudly serve individuals and businesses throughout Los Angeles County, Orange County, Irvine, and Los Angeles, California.

What is Subchapter V Bankruptcy?

Subchapter V bankruptcy, sometimes referred to as Subchapter 5 Bankruptcy, was designed to help small businesses get some relief amid the coronavirus outbreak. Also known as the Small Business Reorganization Act (SBRA) of 2019, Subchapter V increased the maximum allowable debt limit for businesses from approximately $2.7 million to $7.5 million (until March 27, 2021). Therefore, small businesses and companies with up to $7,500,000 in non-contingent, secured, unsecured, and liquidated debt will have enough time to navigate efficiently through bankruptcy or reorganize using Subchapter V.

How Does Subchapter V
Help Small Businesses?

Subchapter V will help small businesses navigate through the Covid-19 crisis in the following ways:

Reduce Expenses

Subchapter V has eliminated some administrative expenses that are normally incurred by small businesses in Chapter 11 bankruptcy. Thus, reorganizing under Subchapter V can be less expensive for them.

Easier Retention of Legal Counsel

Subchapter V has helped modify the requirements for debtors to retain legal representatives. With this, small businesses with debts can more reasonably retain legal counsel to help file bankruptcy quickly, even if they have unpaid prepetition fees.

Debtors Have Exclusive
Rights to File a Plan 

With Subchapter V, only the debtor has the exclusive right to file the plan within 90 days after the bankruptcy filing. There won’t be any need to prepare and file a separate disclosure statement. Creditors or other interested parties are not authorized to submit reorganization plans.

No Absolute Priority Rule

Additionally, Subchapter V eliminates the absolute priority rule. With this, both unsecured and junior class creditors will be paid fairly and equitably.

Modification of Certain Mortgages

Subchapter V allows the modification of rights to the holders of claims that are secured by non-purchase money security interests or mortgages.

Other Benefits of
Subchapter V Bankruptcy

  • Administrative expenses can be paid over the life of a plan.
  • The automatic-stay provision now applies to small business cases.
  • Discharge can be obtained on the effective date of the plan.
  • Debtors can modify motor vehicle loans.

Who is Eligible
for Subchapter V?

Eligibility for Subchapter V relief involves the following criteria:

  • The debt must be incurred in connection with a business or commercial activity. 
  • The debt maximum of $7.5 million must be satisfied
  • More than 50% of that debt must arise from business or commercial activities.

Debtors who own or operate more than one real estate property are also eligible for Subchapter V.

How Do You File
for Subchapter V?

Filing for Subchapter V is faster than the process of traditional Chapter 11 bankruptcy. Subchapter V starts when the debtor files a bankruptcy petition with the court. Within 60 days from the filing, the court will hold a status conference. The debtor is required to report in writing, describing all efforts made or to be made to reach a consensual plan of reorganization.

Within 90 days from the filing, the debtor must file a reorganization plan. The plan may be confirmed by the debtor without the creditor’s acceptance, as long as it is fair and equitable. However, having an attorney is still critical for proper guidance and to help navigate any key decisions along the way.

A standing trustee will then be appointed by the court to facilitate the development of a consensual plan of reorganization. The standing trustee will be responsible for all property received, collecting and retaining plan payments, examining proofs of claim, and opposing discharges.

Work with an Experienced Bankruptcy Attorney Today

Subchapter V offers an efficient way to help small businesses going through financial hardships get the relief they need amid the coronavirus outbreak. However, filing for bankruptcy in California involves a lot of complex procedures and legal requirements. If you are considering bankruptcy during this time of crisis, it is important to consult with a knowledgeable attorney who can provide reliable legal counsel and guidance at every turn.

At The Orantes Law Firm, we are dedicated to providing outstanding legal services and representation for small business owners looking for guidance through the bankruptcy filing process. Our experienced California bankruptcy attorney will evaluate your unique situation and determine which bankruptcy options best suit your needs. Our team will help file your forms and represent you throughout any court proceedings along the way.

Contact The Orantes Law Firm today to schedule a one-on-one consultation with a knowledgeable California bankruptcy attorney. Our team will offer you the comprehensive guidance and advocacy you need to navigate this complex process from start to finish. Regardless of the challenges you’re up against, we’re happy to do all that we can to help you find a solution. We’re also proud to serve individuals and small businesses across Los Angeles County, Orange County, Irvine, and Los Angeles, California.

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