Subchapter 5 Bankruptcy

Who Qualifies to File Subchapter 5 Bankruptcy?

Subchapter V is a status you must actively select if you or your business qualifies to be a small business debtor under the recently created code section. Subchapter 5 limits its eligibility to those businesses or individuals who have less than $3,424,000 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. Debts to insiders (such as business owners, directors, officers, family, or partners) or affiliates are not included in this calculation. This amount changes over time, so our experienced lawyers can tell you whether you qualify based on the most current debt limit.

A bill raising the Subchapter V debt limit to $7.5 million (H.R. 7730, the Bankruptcy Threshold Adjustment Act) passed both the House and Senate in September 2026 but, as of October 21, 2026 reporting, had not yet been signed by the President.

A Subchapter V debtor also must engage in “commercial activities,” which bankruptcy courts have interpreted broadly to allow many debtors to qualify for Subchapter 5 bankruptcy. At least 50% of the debts a debtor has must arise from the debtor’s commercial or business activities. For individuals, this “business debt” can take the form of guarantees on business debts (such as business loans, equipment leases, real estate leases) or pledging equity in a home as collateral for business loans.

A debtor is ineligible for Subchapter 5 if it is a “single asset real estate” entity, meaning that its sole business purpose is to own and/or operate one property. But a business that has one location whose business is not merely operating real estate still qualifies for Subchapter V. For instance, a restaurant with one location would qualify because they provide a service that is not merely managing real estate.

A debtor is also ineligible for Subchapter V if it is a member of a group of affiliated “debtors” that have aggregate debts in excess of $3,424,000, but the term “affiliated debtors” means companies that are all in bankruptcy, so a company with affiliates whose debts exceed that amount may still qualify for Subchapter V so long as the company filing Subchapter V has less than the debt limit.

And, a company is not eligible for Subchapter V if it is a publicly traded company, or if it is an “affiliate” of a publicly traded company.

What is the Subchapter 5 Trustee?

Unlike a traditional Chapter 11 bankruptcy, in a Subchapter 5 bankruptcy a trustee is automatically appointed in the case. Unlike a Chapter 7 bankruptcy trustee, the Subchapter V trustee does not manage the assets for the debtor. Instead, the Subchapter V trustee works with the debtor and its creditors to facilitate consensual resolutions between parties so the debtor can have a consensual plan of reorganization approved.

What are the Benefits of Subchapter 5 Bankruptcy?

Chapter 11 bankruptcy may benefit a wide range of organizations, but the time and costs of the traditional Chapter 11 process made it prohibitive for smaller businesses on the verge of failing or individuals struggling with business-related debts. Subchapter V offers several advantages over a conventional Chapter 11 filing for people who meet the requirements of Subchapter 5. The following are some of the advantages that filing a small company or individual bankruptcy under Subchapter V provides:

No “Absolute Priority Rule”

There is no requirement that the debtor pay unsecured creditors who do not support a plan of reorganization 100% of their claims in order for the owner to retain their ownership in the debtor business. This was one of the most difficult challenges for owners in a regular Chapter 11 bankruptcy, and it has been removed for Subchapter V debtors.

No Required 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 supported, at least in part, by some creditors. While a consensual plan is still beneficial to a Subchapter V debtor, there is no requirement for the plan to receive support from any creditors. Not needing creditor votes is a major benefit of Subchapter 5.

Only You Can File a Plan

In Subchapter V, only the company or person that filed for bankruptcy can propose a payment plan. In other words, there is no “exclusivity period,” which in a regular Chapter 11 bankruptcy is the period during which only the debtor can file a plan of reorganization before someone else can propose how the debts must be repaid. Because only you or your business can file a plan of reorganization in a Subchapter 5 case, that gives a Subchapter V debtor leverage in negotiating with creditors.

Expedited Timelines

Subchapter V bankruptcy is designed to work much more quickly than a regular Chapter 11 bankruptcy. The Bankruptcy Court will hold a status conference within the first 60 days of the Subchapter V case to further the resolution of the bankruptcy. Within 14 days before the status conference, the debtor files a report indicating what steps have been taken to attain a consensual plan of reorganization. Within 90 days of filing the Subchapter 5 bankruptcy, the debtor must file its plan of reorganization.

While these timelines may sound overwhelming while you try to get your business back on its feet or your personal finances in order, they are incredibly helpful as they help to keep costs lower than in a traditional Chapter 11 bankruptcy, and cause creditors to work with you much more quickly to reach consensual resolutions so these timelines can be complied with.

No Disclosure Statement Needed

In traditional Chapter 11 bankruptcy proceedings, you must submit a thorough “Disclosure Statement” — which lists historical information about the company or person in bankruptcy, financial information, and projections of future income and expenses — to be approved by the Bankruptcy Court before filing your plan of reorganization. That adds an extra step to approving a payment plan, which means more time and legal fees. Fortunately, in Subchapter 5, the disclosure statement is included within the plan of reorganization itself, which allows for a more streamlined plan approval process than in a regular Chapter 11 bankruptcy. That is another reason that Subchapter V is somewhat quicker and less expensive than a traditional Chapter 11 case.

Expenses Paid in Installments

In a typical or traditional Chapter 11 case, you must pay all of the administrative costs on the day your plan becomes effective. Those administrative expenses include fees for lawyers, accountants, and other professionals who assisted during the bankruptcy reorganization. However, a Subchapter V bankruptcy allows you to pay those administrative expenses over time as part of the plan of reorganization rather than all at once.

No Quarterly Fees

In a traditional Chapter 11 case, you must pay a fee each quarter of the calendar year for the U.S. Trustee’s oversight of the case. The amount of the fee varies based on how large the bankruptcy case is in terms of funds disbursed each calendar quarter. Fortunately, Subchapter V bankruptcies have no quarterly U.S. Trustee fees.

As you can see, a Subchapter 5 bankruptcy case is typically quicker and less expensive than a traditional Chapter 11 case for many reasons. If you are ready to explore Subchapter V bankruptcy further, we are ready to assist.

Contact Our Atlanta Subchapter 5 Bankruptcy Attorneys Today

Several factors come into play when deciding whether to file bankruptcy for a company or for anyone with an ownership interest in the firm who needs help managing business debts. If you need 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 & Bowen today to learn more about how we can help you or your business.