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Subchapter V Can Help Small Businesses Restructure Their Debt


In personal finance, “debt” and “bankruptcy” are dirty words.  People often try to avoid filing for personal bankruptcy unless they have no other choice.  In business, however, debt is just a normal part of life.  Personal financial goals are usually about saving for the future so that there is something left for your descendants to inherit after you die, but in business, the goal is to predict market trends and earn money in the future, even though it means taking a financial risk in the short term; the goal is creditworthiness, not a nest egg.  Therefore, debts that you cannot pay, at least not now, are all in a day’s work.  Federal bankruptcy laws give businesses the right to file for bankruptcy protection, just as individuals can.  A pandemic era amendment to chapter 11 bankruptcy laws gives small businesses the flexibility they need regarding restructuring their debts while remaining open for business.  If you are considering filing for chapter 11 bankruptcy for your small business, contact a Washington D.C. small business lawyer.

Subchapter V of Chapter 11 Bankruptcy Law

In a chapter 11 bankruptcy filing, the business applying for bankruptcy proposes a plan for restructuring its debt.  In most chapter 11 bankruptcy cases, some or all of the creditors must approve the proposed plan before the bankruptcy court signs off on it.  Subchapter V of chapter 11 enables eligible businesses to restructure their debt without the creditors getting a veto vote.  Instead, the court appoints a trustee, much like in other types of bankruptcy filings.  Before 2019, subchapter V filings were only available to businesses seeking to restructure $2.7 million or less in debts.

During the COVID-19 pandemic, the federal government amended subchapter V to increase the amount of eligible debt to $7.5 million.  The purpose of this measure was to help struggling small businesses survive the disruptions related to the pandemic.  Three years later, while the businesses that have not closed down have seen a rebound in customer demand, but because prices have remained high, the opportunity to restructure more than $7 million in business debt comes as a relief to small businesses.

The subchapter V amendment has attracted a lot of participation from eligible businesses, and the demand for it only seems to be growing.  2022 saw even more subchapter V filings than the years preceding it.  The most populous states had more subchapter V filings than smaller states; Florida, Texas, and California each accounted for more than 140 subchapter V chapter 11 filings in 2022.

Filing for small business bankruptcy is not the only option if you are determined to stay in business but you cannot repay your business debts in the amount that you currently owe.  A small business attorney can help you find the best option and negotiate with creditors.

Reach Out to Us Today

A Washington, D.C. small business attorney can help your small business restructure its debts and continue to operate.  Contact Tobin, O’Connor & Ewing today for help.



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