If you have started searching for a business bankruptcies attorney near you in 2026, the debts have probably been piling up for a while. A consultation is a good time to ask questions, and you can and should ask these questions before signing a retainer with a bankruptcy attorney. We are a business debt settlement firm, not a law firm, so treat what follows as a list to bring to a lawyer rather than legal advice. Most of it centers on Subchapter V of Chapter 11, the small business option that changed the conversation for owners.
Subchapter V of Chapter 11
Start with the big one: Is Subchapter V the right Chapter 11 for me? Why would you pick that over Chapter 7 or Chapter 13? Subchapter V of Chapter 11 went into effect on February 19, 2020. It was created by the Small Business Reorganization Act of 2019 (“SBRA”). Its goal is to make reorganization quicker and less costly for small businesses (and individuals) so that they can reorganize and continue operating. Before that, Chapter 11 was often too costly for small businesses to consider, so they went straight to Chapter 7 and liquidated. Chapter 13 is only for individuals, and it has debt limits. Subchapter V is meant for a small business to reorganize as opposed to going out of business under Chapter 7. It helps keep the small business operating, which is good for the owners, employees, suppliers, customers, taxing authorities and others who rely on the business.
Next, ask: Do I even qualify for Subchapter V of Chapter 11, or is a regular Chapter 11 the only option? To qualify for Subchapter V, at least 50% of your debt has to be from commercial or business activities. Early rulings, such as In re Wright, Bankr. D.S.C. 2020, have held that the business does not have to remain in operation. The one big “no” so far: single-asset real estate businesses don’t qualify. Debt caps: at enactment the cap was $2.7 million. The CARES Act bumped it up to $7.5 million for a limited time (extended to March 2022). You need to check what the current cap is.
Then ask what it will cost, and why it should cost less than a traditional Chapter 11. There’s no requirement for a creditors’ committee. You pay no U.S. Trustee fees. You don’t need a disclosure statement. And overall, it’s less expensive. Hiring counsel is also easier, because some of the requirements for retention were modified. Only the debtor can file a plan in Subchapter V. In a traditional Chapter 11, creditors could file their own competing plans, and fewer competing plans generally means a cheaper case.
Can you walk me through what the trustee’s role will be? How will the trustee impact my business? Will I have to pay the trustee? Yes, a trustee is always appointed, but they do not take control of the business. Think of them as a built-in mediator. The debtor compensates the trustee, but fees are typically modest. In a consensual plan, the trustee’s role ends at substantial consummation (when the debtor starts making payments to creditors). In a nonconsensual plan, the trustee makes the payments to creditors until the plan is complete. Since you pay for that time, a good attorney will tell you not to overuse the trustee.
”Fair and Equitable”
What if everyone says “no” to my plan? Even if every creditor votes against the plan, it can be confirmed if it is “fair and equitable.” Creditors must receive the greater of what they would get in a liquidation or all projected disposable income for three to five years. Disposable income is income not needed for ordinary and reasonable business expenses like payroll, rent, marketing, and supplies. This leads to fights over how much the owner can be paid. There are some who want to pay an owner more than what is paid by a competitive employer. Creditors object because that could result in a reduction to distributions. So ask how the attorney will justify your own salary before a creditor challenges it. Under Subchapter V, the plan must be for a period of three to five years.
Does the absolute priority rule block confirmation? No. Under Subchapter V, the absolute priority rule is eliminated as an obstacle to confirmation. The rule is complicated, so have the attorney explain what its removal means for your plan. Ask about the other changes too: you no longer need creditor approval, you can modify the mortgage on your house if it was used for business purposes, you can amend your plan after confirmation easier, and the discharge has been improved in other ways. Many of the cases settle out. In fact, a number of bankruptcy cases are settled by the parties after filing (prior to a plan being confirmed) whereby the parties voluntarily dismiss the case.
Subchapter V Does Not Eliminate Your Personal Guarantee
Finally, ask: What happens to my personal guarantee? Subchapter V does not eliminate your personal guarantee. Creditors will look to you personally. While it relieves the business debt, it does not wipe the slate clean for the owner’s personal debt. The business can strip down its liabilities, and the lenders will turn to the guarantor to make up the difference. If you are in financial trouble too, then you might need to file your own Chapter 11 Subchapter V, or a Chapter 7 or Chapter 13 petition. If that is not an option, debt settlement is the best alternative, and it is the kind of work we do.
Subchapter V gave small businesses a real chance at reorganizing that they did not have before 2020. Bring these questions to your consultation, write down the answers, and make sure you understand what happens to the business and to you personally before you sign anything.
