Financial problems do not always mean a business has failed. A profitable company can face serious debt after losing a major customer, experiencing unexpected expenses, or falling behind on obligations. Fortunately, Chapter 11 Subchapter V bankruptcy may provide qualifying Texas businesses with a path forward.

Subchapter V is a streamlined form of Chapter 11 bankruptcy designed primarily for small business debtors. It allows qualifying businesses to reorganize debt while continuing to operate. Moreover, the process can be faster and less costly than traditional Chapter 11 bankruptcy.

If your Texas business has significant debt but a viable future, understanding Chapter 11 Subchapter V bankruptcy is an important first step.

What Is Chapter 11 Subchapter V Bankruptcy?

Congress created Subchapter V through the Small Business Reorganization Act of 2019. The law took effect in 2020 and created a more accessible reorganization process for qualifying small businesses.

Traditional Chapter 11 bankruptcy can involve significant costs, extensive paperwork, and complex negotiations with creditors. Subchapter V keeps many benefits of Chapter 11 while simplifying several aspects of the process.

Most importantly, the goal is reorganization rather than liquidation. A qualifying business can generally continue operating while developing a plan to address its debts.

For a company with a strong underlying business but overwhelming financial obligations, that distinction can be critical.

Who Qualifies for Subchapter V Bankruptcy?

Not every struggling business can elect Subchapter V. Eligibility depends on several requirements established under federal bankruptcy law.

Currently, a qualifying debtor generally must have no more than $3,424,000 in combined secured and unsecured debt. At least 50 percent of that debt must arise from commercial or business activities.

Additionally, the debtor must be engaged in commercial or business activities. Certain businesses primarily involving a single real estate asset do not qualify.

Eligibility can become complicated when a business has different types of debt, related entities, or unusual ownership structures. Therefore, business owners should not assume they qualify based solely on their total debt.

A Texas bankruptcy attorney can examine the business’s obligations and circumstances to determine whether Subchapter V is available.

How Is Subchapter V Different From Traditional Chapter 11?

Both traditional Chapter 11 and Subchapter V focus on reorganizing debt. However, Subchapter V was specifically designed to make that process more manageable for small businesses.

For example, Subchapter V cases follow an accelerated schedule. Generally, the debtor must submit a reorganization plan within 90 days after filing. The court can extend this deadline in certain circumstances beyond the debtor’s control.

Additionally, only the debtor may file a reorganization plan under Subchapter V. This removes the possibility of creditors filing competing plans.

A Subchapter V trustee is also appointed. However, the trustee’s role differs from liquidation under Chapter 7. The trustee generally helps facilitate a workable reorganization between the debtor and creditors.

Subchapter V also eliminates certain expenses associated with traditional Chapter 11 cases, including U.S. Trustee quarterly fees.

Can Creditors Reject a Subchapter V Reorganization Plan?

One important feature of Chapter 11 Subchapter V bankruptcy involves plan confirmation.

Unlike a traditional Chapter 11 case, a Subchapter V plan does not always require creditor approval. The bankruptcy court may confirm a plan over creditor objections if the plan meets applicable legal requirements.

Generally, a nonconsensual plan requires the debtor to commit projected disposable income to creditors for three to five years. Alternatively, the debtor may distribute property of equivalent value.

Creditors can still raise objections. Therefore, developing a realistic and legally sound reorganization plan remains extremely important.

The Fealy Law Firm, PC can help business owners evaluate their finances and develop strategies for presenting a viable reorganization plan.

Can Your Business Remain Open During Subchapter V Bankruptcy?

In many cases, yes. In fact, helping viable businesses continue operating is one of Subchapter V’s primary purposes.

Filing bankruptcy does not automatically mean shutting down your company. Instead, the business can generally continue operating as a debtor in possession while the case proceeds.

Furthermore, filing bankruptcy usually triggers an automatic stay. The automatic stay generally prevents creditors from continuing many collection activities while the bankruptcy remains pending.

This breathing room can give a business time to reorganize its obligations without constantly responding to collection efforts.

However, continuing operations also brings responsibilities. Business owners must comply with bankruptcy requirements and demonstrate that their proposed financial strategy is workable.

What Are the Potential Benefits of Subchapter V?

For qualifying businesses, Chapter 11 Subchapter V bankruptcy may provide several advantages.

The process can offer a faster route toward reorganization than traditional Chapter 11. Additionally, reduced administrative requirements can make bankruptcy more affordable for smaller companies.

Perhaps most importantly, Subchapter V provides an opportunity to address debt without immediately abandoning an otherwise viable business.

A successful reorganization may allow a company to maintain important assets, continue serving customers, preserve business relationships, and work toward renewed profitability.

However, bankruptcy is not appropriate for every struggling business. In some situations, traditional Chapter 11, Chapter 7 liquidation, or another debt strategy may make more sense.

Is Subchapter V the Right Choice for Your Texas Business?

Determining whether Subchapter V is appropriate requires more than comparing your debts to the eligibility limit.

Your company’s revenue, assets, secured obligations, contracts, leases, cash flow, and long-term prospects can all affect the decision. Additionally, owners should consider whether the business can realistically support a reorganization plan.

Timing also matters. Waiting until a company’s financial situation becomes unmanageable may reduce the options available.

Therefore, business owners facing mounting financial pressure should consider discussing their circumstances with an experienced bankruptcy attorney before deciding how to proceed.

Get Help With Chapter 11 Subchapter V Bankruptcy in Texas

Chapter 11 Subchapter V bankruptcy can provide qualifying small businesses with a powerful opportunity to reorganize debt while continuing operations. However, determining eligibility and creating a workable reorganization plan requires careful financial and legal analysis.

The Fealy Law Firm, PC helps Texas business owners understand their bankruptcy options and develop strategies based on their individual circumstances. Attorney Vicky Fealy can evaluate whether Subchapter V, traditional Chapter 11, or another approach may provide the best path forward.

From its Houston office, The Fealy Law Firm, PC assists clients in Harris County, Galveston County, Montgomery County, Brazoria County, Waller County, Fort Bend County, and throughout Southeastern Texas.

If financial problems are threatening your company’s future, you do not have to determine your next move alone. Contact us at The Fealy Law Firm, PC to schedule a complimentary consultation and discuss whether Chapter 11 Subchapter V bankruptcy could help your business reorganize and move forward.