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Subchapter 5 Bankruptcy


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Subchapter 5 Bankruptcy Attorneys In Atlanta, GA

Chapter 11 bankruptcy enables businesses to restructure and reorganize their debt over three and five years while continuing to operate. However, for many small business owners, a Chapter 11 filing is often too difficult and costly. In 2019, the US Bankruptcy Code was amended to enable smaller firms to consolidate their debts more easily through subchapter 5. The subchapter took effect in 2020. It streamlines the process for modest companies who are making money but having trouble repaying their obligations by allowing them to pay down their debt faster.

Filing for bankruptcy under Chapter 5 allows businesses to choose from a variety of court-approved repayment options ranging from three to five years. They can also utilize the plan to get rid of some of their unsecured debt. Unsecured debt is money that you don’t have anything collateralized, such as most credit card bills. Secured debts are indebtedness for which security has been given, such as a mortgage or automobile loan. Our Atlanta Subchapter 5 bankruptcy attorneys have extensive expertise with all phases of bankruptcy and can help you figure out the best approach to debt relief or company debt recasting if your firm requires assistance.

Who Qualifies To File Subchapter V Bankruptcy?

SubChapter V is a status you must actively select if your or your business qualifies to be a small business debtor under the newly created code section. The CARE Act currently permits firms and persons with up to $7,500,000 in secured and unsecured non-contingent (one where all events giving rise to the liability for the debt occurred before the debtor’s filing) and liquidated (meaning the amount owed is known) debts to opt for Subchapter V bankruptcy. The prior debt limit was only $2,725,625, and after the expiration of the CARES Act this year, it may fall back down to the old level. 

Second, you must engage in “commercial or commercial activities,” unless you are the owner of a single property. In a nutshell, if you’re an individual, it’s highly likely that you’ll have to be at least a 1099 contractor rather than a W2 employee for a big firm. If you work for someone else, creditors will attempt to claim that you aren’t engaged in “commercial or business operations.”

What Are The Benefits Of Subchapter 5 Bankruptcy?

Chapter 11 bankruptcy may be beneficial to a wide range of organizations, but the time and costs involved with submitting can make it prohibitive for smaller firms on the verge of failing. Subchapter V offers several advantages over a conventional Chapter 11 filing for people who meet the requirements. The following are some of the advantages that filing a small company bankruptcy under Subchapter 5 provides:

Continued Business Operations

You will continue to operate and manage your company as long on the payment plan as you stick to it. You’ll also need to pay all of your unsecured creditors any disposable income you have while the plan is in place.

No Creditor Approval

If the bankruptcy court determines that your plan is fair, it can approve it without the approval of your creditors. A typical Chapter 11 plan must be validated by lenders.

Only Your Business Can File A Plan

In other words, if you are a company owner and your Chapter 11 bankruptcy case has been submitted by the trustee, then you must initiate liquidation proceedings on your own. However, in Subchapter 5 of the Bankruptcy Code, only your business may do so.

No Disclosure Needed

In Chapter 11 bankruptcy proceedings, you must always submit a thorough disclosure form to the court. The statement explains your company’s finances and whether you’ll be able to repay your lenders. No statement is required in a Subchapter 5 case.

Special Trustee

The court will grant you permission to continue operating your business while in bankruptcy. A trustee will be appointed to oversee the company’s operations while it is under supervision. The trustee will also offer suggestions to the court on whether or not the reorganization plan should be confirmed.

Expenses Paid In Installments

You must pay all of the administrative costs on the day your plan becomes effective in a typical Chapter 11 case. Subchapter 5 allows you to pay the expenses over time rather than all at once.

Who Can Claim Subchapter 5 Bankruptcy?

Businesses must be engaged in commercial operations and owe less than $2.75 million in debt to qualify for Chapter 5 bankruptcy. Company insiders’ debts are not permitted. Businesses that own and operate a single property as their primary business activity are not eligible.

Contact Our Atlanta Subchapter 5 Bankruptcy Attorney Today

There are a variety of factors to consider when deciding whether or not to file bankruptcy for the company entity or anybody with an ownership interest in the firm that requires assistance managing their business debts. If your firm needs debt relief or business debt restructuring, our experienced Atlanta subchapter 5 bankruptcy attorneys have extensive experience with all chapters of bankruptcy and can help you choose the best course of action. Contact Robl Law Group today to learn more about how we can help you and your business.