For decades, small business owners faced an ugly choice when debt overwhelmed the company: shut down through Chapter 7, or attempt a full Chapter 11 that was built for corporations with restructuring departments. The Small Business Reorganization Act changed that. Its creation, Subchapter V of Chapter 11, took effect in 2020 and gives small businesses the core powers of Chapter 11 without most of the cost and procedural weight.

If you own a business that earns real money but cannot carry its current debt, Subchapter V is probably the first chapter you should understand.

Who qualifies: the debt cap

Subchapter V is limited to debtors engaged in business whose total secured and unsecured debts fall at or under a statutory cap, currently $3,424,000, not counting debts owed to insiders or affiliates. At least half of the debt must come from business activity. The cap adjusts periodically, and Congress has changed it before, so checking the current figure at filing time matters.

The debtor can be a corporation, an LLC, a partnership, or an individual. A sole proprietor whose debts are mostly business debts, including personal liability for company obligations, can qualify personally.

What gets stripped out of Chapter 11

Subchapter V keeps the protections and removes the friction. Compared to a traditional case, which we explain in our guide to Chapter 11 reorganization basics, a Subchapter V case usually has:

  • No creditors committee, which in regular Chapter 11 hires its own professionals at the estate's expense
  • No separate disclosure statement, since the plan itself carries the required information
  • No quarterly U.S. Trustee fees
  • No competing plans, because only the debtor may file one
  • A facilitating trustee whose statutory job is to help the parties reach a consensual plan, not to take over the business

The owner stays in control as debtor in possession throughout.

The clock: day 60 and day 90

Subchapter V runs on a deliberately compressed schedule:

  1. Day 0: petition filed. The automatic stay protects the business immediately, and a Subchapter V trustee is appointed.
  2. About day 60: status conference. The court holds a status conference to assess progress toward a consensual plan. Shortly before it, the debtor files a short report describing the efforts made.
  3. Day 90: plan due. The reorganization plan must be filed within 90 days of the petition, a deadline courts extend only for circumstances for which the debtor should not justly be held accountable.

The compressed clock is a feature, not a burden. Less time in bankruptcy means less money spent on the process and faster certainty for the business, its employees, and its vendors.

Confirmation without creditor consent

Here is the provision that gives Subchapter V its teeth. In regular Chapter 11, a plan generally needs at least one impaired class of creditors to vote yes. In Subchapter V, the court can confirm a plan even if every class rejects it, as long as the plan does not discriminate unfairly and is fair and equitable.

For a small business, fair and equitable centers on a commitment: the plan must devote the business's projected disposable income, what is left after reasonable operating expenses and the owner's reasonable living expenses, to plan payments for 3 to 5 years. Perform under the plan and the remaining qualifying debt is discharged.

Owners also keep their equity without contributing new money, a departure from the rule that complicates regular Chapter 11 cases for small companies.

What a case asks of the owner

Subchapter V is lighter, not light. The debtor still files full schedules and statements, still attends a meeting of creditors, still files monthly operating reports, and still operates transparently under court oversight. The trustee will want realistic projections, and the projections have to survive scrutiny, because the plan is built on them.

The biggest practical demand is clean books. A business that cannot produce accurate financials quickly will struggle with the 90 day deadline. Getting the bookkeeping current before filing is often the single most valuable piece of preparation.

Subchapter V or something else?

If the business is viable but overloaded with debt, Subchapter V is built for exactly that. If the business is not viable, a Chapter 7 for the entity, or a personal filing for the owner who personally signed for company debt, may be the cleaner answer. And if total debts exceed the cap, traditional Chapter 11 remains available. The broader decision framework is in our guide to which bankruptcy chapter fits you, and owners winding down often also need to understand what Chapter 7 looks like in Florida for the personal liability side.

See your options

Whether your business fits under the Subchapter V cap, and whether reorganization beats winding down, is a numbers question before it is a legal one. Run our free 3-minute options check, or call Recalde Fresh Start at (305) 792-9100.