What to Know About Subchapter V of the Bankruptcy Code

Subchapter V is an evolving portion of the bankruptcy code that helps expedite the process for small business. With the CARES Act coming up for renewal in March, it’s important to know how this code could come into play for certain-sized companies looking at a Chapter 11 filing.

Almost two years ago, Congress passed the Small Business Reorganization Act of 2019 (SBRA), which allowed small businesses under a certain size to not incur certain Chapter 11 administrative expenses as long as the value of the bankruptcy was under $2,725,625.00 (excluding debts owing to affiliates and insiders).

In 2020, Congress raised that cap to $7.5 million as a result of the CARES Act, which provided that first round of stimulus checks. This new cap is still in effect, but must be renewed by Congress by April to remain active.

How Subchapter V Helps Certain Small Businesses

The code does not allow creditors or other interested parties to submit plans of reorganization on behalf of the debtor. The updated code requires the debtor to include in the plan a brief history of the operations of the business, a liquidation analysis, and projections for future payments under the proposed plan.

It also eliminated the absolute priority rule, which mandated that impaired and dissenting classes of creditors be paid prior to any junior class receiving property under a reorganization plan. This rule meant that if a business were to pay creditors less than what they were owed, the owners of the business would need to contribute new value to the business in order to continue owning the company following the bankruptcy. It also changes how equity is viewed through the lens of a Chapter 11 filing. It is helping more small businesses work through reorganization by allowing owners to continue running their businesses and enjoying the ownership benefits.

Limitations of the SBRA

One potential limitation is the expedited timeline to complete the filing. Subchapter V moves the plan filing deadline up to 90 days after the filing of the case (from 180). If a debtor can’t get the filing together within that amount of time, there are limited ways that the timeline can be extended and it may move out of his or her control. A Subchapter V case will work best if the business has its records in order and can propose a plan concurrently with the filing of the case.

As the CARES Act deadline for renewal approaches, there will be continued uncertainty about how small businesses can effectively file for Chapter 11 and restart or reorganize financial pathways to success.


This is why it’s vital to work with a bankruptcy law firm that stays on top of the latest developments as the law continues to evolve. Arkansas businesses trust Natural State Law to do just that. Call (501) 916-2878 to learn more and schedule a free consultation.