For nearly half a century, Chapter 11 of the Bankruptcy Code has been a lifeline for troubled businesses, allowing them to reorganize under the protection of the bankruptcy court. But Chapter 11 isn’t the only alternative for distressed businesses; in fact, there are a number of options that you can pursue. Of course, Chapter 11 also has drawbacks, well-known ones. Prepacks and Subchapter V’s are technically Chapter 11s, but they’re also alternatives to Chapter 11. A prepackaged case can even force through liability management exercises (LMEs) against minority dissenting holders.
The shift toward these alternatives has been building for a while but seems to be accelerating. The alternatives are succeeding in new and more varied situations than ever before.
The changes in 2025 and 2026 share a theme. They modernize and standardize Chapter 11 alternatives. Three of the most important: the new UABCA, the receivership act UCRERA, and Subchapter V.
Uniform Assignment for the Benefit of Creditors Act
The Uniform Assignment for the Benefit of Creditors Act was just released in October 2025, but businesses have been using ABCs in many states long before 1978, when the modern Code was adopted. Other states have skirted the use of ABCs, often because their statutes are outdated or sparse.
The problem with ABCs is that their legal structure has varied from state to state. The UABCA attempts to fix that, and if enough states adopt it, ABCs will have consistent statutory treatment for the first time.
The UABCA does leave the possibility of a court supervising an ABC, but it need not be the norm. This makes the UABCA work in states where courts routinely supervise ABCs and states where they do not.
The assignee in an ABC is a fiduciary under the UABCA. That means they owe duties of loyalty, maximizing value, and administering the assets efficiently.
The UABCA gives the assignee lien-creditor status for any personal property the debtor owns and good-faith-buyer status for any real estate the debtor owns, clearing up doubts about unperfected liens.
Creditors are required to file proofs of claim under the UABCA, and the time frame is 90 to 210 days.
One of the things the UABCA does is that it makes a court in one state that adopts the UABCA honor an assignment made under the laws of another state that adopts it. It also says that just having the assignee’s home or place of business in one state doesn’t create jurisdiction, slowing down forum shopping.
The UABCA sets a payment order that lists some categories of claims to get paid ahead of others. Administrative costs come first, followed by federal priority claims, certain wages and then general unsecured creditors.
State Receivership Laws
The Uniform Law Commission acted before the UABCA on another distressed-business tool, the UCRERA for receiverships. Receiverships are used by creditors against distressed businesses.
The Uniform Commercial Real Estate Receivership Act (UCRERA) was enacted in 15 states plus the District of Columbia, filling many longstanding gaps in state receivership laws.
The UCRERA is misnamed. It was designed for commercial real estate, but some states where it was passed expand it to operating businesses.
A standard state receivership law doesn’t stop a creditor from picking up its collateral, and enforcing its liens, but the UCRERA does. There are exceptions. Perfection is one.
The UCRERA makes a break from the Bankruptcy Code here. Under the UCRERA, a pre-receivership security interest usually takes in after-acquired collateral, unless state law says otherwise.
A receiver appointed under the UCRERA can sell an asset outside the ordinary course of business and possibly free of liens.
A receiver appointed under the UCRERA can decide, with the court’s OK, whether to assume or reject an executory contract, not exactly like bankruptcy but close.
The third tool is Subchapter V. Chapter 11 is an incredibly powerful tool, and it can do things no other solution can. Bankruptcy professionals know this better than anyone, and that’s often why you’ll see a Chapter 11 rather than a Subchapter V or something else. If the only tool you have is a hammer, it’s tempting to treat everything like a nail.
Admittedly, Subchapter V is technically a Chapter 11. And the mechanics, and the case law, and how it’s actually done are mostly the same. It’s like humans and apes, who share 96% of the same DNA. Ninety-six percent was meant to be an arbitrary figure, for purposes of the analogy.
But Subchapter V is different in kind. It throws out the absolute priority rule. It nearly throws out disclosure statements and committees. It adds a trustee. For some distressed companies, those differences make Subchapter V a far better path than traditional Chapter 11.
Who qualifies depends on the statutory definition of what a small business debtor is. That definition varies by the amount of secured and unsecured debt that the company owes. There’s a lot of confusion about the cap for a Subchapter V. It’s actually $3,424,000 since April 1, 2025, only for noncontingent, liquidated debts to non-insiders. Those terms aren’t black and white.
Subchapter V took effect in February 2020. It’s a kindergartner sitting next to 47-year-old Chapter 11. It’s still developing case law and will continue through at least 2026.
This is not to say Chapter 11 is dying. Far from it. It will remain what every other option to reorganization is measured by. As an option, Chapter 11 remains an excellent choice for most large businesses and many smaller ones. But Chapter 11 as it has been used for 47 years can be an expensive, time consuming, and unpredictable process. You’ll see more prepacks and Subchapter Vs.
For an expert take on Chapter 11’s shortcomings, see Charles J. Tabb’s 2021 critique, 71 Syracuse Law Review 557.
On the increase of out-of-court deals, Friedland and Spiegel, Daily Bankruptcy Review, Oct. 24, 2007, p. 11; Friedland, Bankruptcy Data 2019 yearbook (29th ed.), p. 300.
Liability management transactions (or LMTs, or LMEs): see Friedland’s article in DailyDAC May 7, 2025.
For a more detailed description of the UABCA, see Coordes and Friedland, DailyDAC, October 30, 2025.
The way ABCs work varies from state to state. See, e.g., Carly Landon, Note, 41 Fordham Urban Law Journal 1451, 1473 (2014) (explaining how difficult summary of the law on ABCs is).
Some companies used Subchapter V even though they had tens or hundreds of millions in possible claims because the claims were contingent and unliquidated. For more detail, see Friedland et al.’s user’s guide.
Despite its own troubles, Chapter 11 still has many advantages over alternatives. On this, see Sprayregen, Friedland & Higgins (2005), vol. 14, issue 6, at p. 3.
For an overview of how Subchapter V may improve Chapter 11, see Bussel & Damiani, Part I, Bankruptcy Law Letter, vol. 44, no. 6 (June 2024).
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