In 2020 and 2021, many small businesses in Long Island were forced to close their doors. Some of these business owners who have realized that they can no longer operate their business may consider filing for Chapter 11 bankruptcy. If so, they may want to learn more about the “small business case” and the “subchapter V case” in the Chapter 11 bankruptcy process.
What is a small business case?
Under the Bankruptcy Code, small business debtors are afforded a streamlined debt relief opportunity. This is known as the small business case. To qualify, the debtor must be engaged in commercial or business activities. In addition, the total amount of secured and unsecured debt must be $2,725,625 or less. The secured debt must be noncontingent and liquidated. In addition, of the total amount of debt, not less than 50% must have come from commercial or business activities. Small business cases will be overseen by the U.S. trustee who will monitor the debtor’s activities to determine as soon as possible whether a plan can be confirmed.
What is a subchapter V case?
A subchapter V case is another way for businesses to streamline the debt relief process. The eligibility requirements for a subchapter V case are the same as those for a small business case, but the debt limit is different. The CARES Act enacted in March 2020 temporarily rose the debt limit for subchapter V cases to $7,500,000. This increase will end on March 27, 2022, at which time the debt limit for a subchapter V case will be the same as that of a small business case. In a subchapter V case, the trustee’s role is to facilitate the development of the debt reorganization plan and to ensure the debtor is following the plan. The confirmation requirements for a subchapter V case are more relaxed than those of a small business case.
Learn more about Chapter 11 bankruptcy
Small businesses who have struggled financially over the past two years may find that their best option is to file for Chapter 11 bankruptcy. Some of these businesses will qualify for the streamlined small business case or subchapter V case. In the end, exploring all your debt relief options including filing for bankruptcy can help lead your business to a more sustainable financial future.