Subchapter V bankruptcy, created by the Small Business Reorganization Act (SBRA) in 2019, offers a streamlined and potentially more affordable form of Chapter 11 reorganization for small businesses. However, there are both advantages and disadvantages to choosing this option.

Pros:

• Simplified process — Compared to a normal Chapter 11, Subchapter V has a shorter timeline and fewer administrative requirements, making it faster and less complex. For example, there is no creditors’ committee formed to approve confirmation of the reorganization plan.
• Lower costs — Costs of Subchapter V are generally lower due to its simplified procedures and fewer administrative fees. For example, unlike in a normal Chapter 11, there are no creditors' committee costs and no quarterly U.S. trustee fees.
• Easier access to cash — The debtor can maintain operational cash flow and keep the business running while under bankruptcy protection.
• Greater control — The debtor retains more control over the business during the restructuring process, with only marginal oversight by the court-appointed trustee.

Cons:

• Debt limit — As of 2023, only businesses with total secured and unsecured debts below $7.5 million are eligible.
• Stricter timeline — Subchapter V requires filing a proposed plan within 90 days of the petition date, compared with 120 days in a normal Chapter 11. This deadline can be difficult for a small business to meet. However, an extension may be available in special circumstances.
• Potential challenges — Although no creditors’ committee is formed, creditors may object to the proposed plan on various grounds, such as that it fails to provide creditors with at least as much value as they would receive in a liquidation. There is thus a risk of the case being converted to a normal Chapter 11 if the court finds the plan does not comply with Subchapter V requirements.
• New and relatively untested — Subchapter V is a recent addition to the Bankruptcy Code, meaning there’s less judicial precedent and more uncertainty about its interpretation and application in courts. This can be a risk for debtors seeking predictable outcomes.

Ultimately, the decision to pursue Subchapter V bankruptcy depends on several factors specific to your business’s eligibility. Consulting with a qualified bankruptcy attorney is a good first step as they can help you determine if it's the right path for you, walking you through both the potential benefits and challenges.

At Anker Law Group, P.C., we are experienced business and personal bankruptcy attorneys serving clients in the Rapid City area and throughout South Dakota. We are dedicated to helping you choose what bankruptcy option works best for you. Call us at 605-519-5967 or contact us online for a free consultation.