What are the benefits of Subchapter V bankruptcy for a small business?

All too often, bankruptcy is an expensive ordeal, particularly if a business is attempting to reorganize. It is not only financially draining, but also drains a person’s time and energy.

For many small businesses, the cost and time associated with a standard Chapter 11 reorganization can be too much. To help alleviate these issues, Congress passed the Small Business Reorganization Act of 2019, creating what is known as Subchapter V. But what does this add to the Chapter 11 process and what exactly does this mean for small business owners? Here is a look at the benefits of Subchapter V, who qualifies, the debt limit, and the impact it can have on bankruptcy filings.

Key Benefits for Small Business Owners

The point of Subchapter V was to make the Chapter 11 process simpler, faster, and less expensive for small businesses. And for the most part, it has worked. It has accomplished this through a number of key benefits for small business owners. Here are some of those benefits.

First, Subchapter V simplifies the Chapter 11 process. The process reduces both the time and money spent on a standard Chapter 11, which can be a big help for businesses that lack the resources. Subchapter V makes the reorganization process feasible.

Second, a trustee is appointed in every case. The trustee does not run the business, but does help with the negotiations between the debtor and creditors. This can often be crucial to reaching a fair and efficient solution. Moreover, a small business owner can continue to manage their business on a day-to-day basis while the trustee works to support the reorganization’s success.

Third, Subchapter V does not have any U.S. Trustee fees and does not have committees (unless the court orders one for cause). This means the debtor does not have to pay for committee lawyers or committee advisors. In a standard Chapter 11, the debtor must pay the committee’s lawyers and advisors. That can get expensive, quickly. Not having committees and not paying fees for the U.S. Trustee can be a big cost savings for any business filing bankruptcy.

Fourth, only the debtor can propose a plan in a Subchapter V filing, giving the debtor real control and the power to shape the plan in a way that works for them. The debtor remains in the driver’s seat, because creditors can’t file competing plans.

Fifth, Subchapter V requires less for plan confirmation than a standard Chapter 11 filing. The absolute priority rule, which would require creditors get paid in full before owners can retain anything, does not apply. This is in stark contrast to a traditional Chapter 11, where business owners could lose their business if they did not pay creditors in full. This can enable small business owners to keep their ownership interests while treating creditors fairly, making a successful reorganization more likely.

Three Main Requirements to Qualify

Unfortunately, this process is not available to every small business. Subchapter V has a very narrow eligibility to qualify for it and that is probably the biggest criticism of the process. Thus, many small businesses do not have the option to use Subchapter V. The debtor has to elect to do a Subchapter V bankruptcy and it must meet the requirements as of the filing date. There are three main requirements to qualify for Subchapter V.

First, the debtor must be engaged in commercial or business activities. Most courts also find that a debtor who is winding down a company also qualifies. So, even if your business is shutting the doors, it may still qualify.

Second, at least half of the debtor’s debts must be from business activities. This means that if most of your debts are personal debts, your business will not qualify for Subchapter V.

Third, the debtor’s total debts must be no more than $3,424,000, including any noncontingent, liquidated, secured, and unsecured claims. Affiliated debtors filing together have to combine their debt for the purpose of this limitation.

Debt Limit

There is some background to this debt limit as well. In February 2020, the debt limit was $2,725,625. Then, in March of 2020, the coronavirus pandemic wreaked havoc on businesses. In response, the CARES Act increased the debt limit to $7.5 million. However, this increase was only temporary, and only applied to cases filed or pending on or after March 27, 2020. Congress later extended this deadline twice, until June 20, 2024. In April 2024, Congress did attempt to extend this deadline until June 20, 2026, however, it failed in the Senate. This meant that as of June 21, 2024, the limit returned to $3,024,725. This is the original debt limit in the SBRA, adjusted for inflation. A routine inflation adjustment then raised it to $3,424,000 on April 1, 2025.

It is too early to know the ultimate impact of the return to the lower limit. However, Subchapter V filings will likely see a big decrease. As of April 2024, Subchapter V filings were up 60% from April 2023. In fact, April 2023 filings were 81% greater than April 2022 filings. The U.S. Trustees’ office also provides statistics on Subchapter V filings on a monthly basis. From 2020 through October 2024, Subchapter V filings were almost twice as likely to be confirmed compared to other small business bankruptcy cases. They were also 20% less likely to be dismissed. Additionally, they were confirmed nearly four months faster on average. The bottom line is that the stats make clear Subchapter V filings have outperformed normal small business Chapter 11 cases. And, prior to the drop in the debt limit, these filings were growing quickly.

Clearly, small businesses are worth saving. But the smaller debt limit might mean that survival will be impossible for many businesses. Congress has moved to do that. In September 2026 it passed the Bankruptcy Threshold Adjustment Act (H.R. 7730), which would permanently restore the $7.5 million limit. As of late October 2026 the bill was still awaiting the President’s signature, and the higher limit applies only to cases filed after it becomes law.

Bankruptcy Code, 11 U.S.C. § 101 et seq.

Public Law 116-54, § 2, 133 Stat. 1079 (adding Subchapter V to the Bankruptcy Code).

H. Rep. No. 116-171 (explaining that the SBRA was meant to simplify small business reorganization).

11 U.S.C. § 1183(a) (appointment of trustee).

28 U.S.C. § 1930(a)(6)(A) (U.S. Trustee fees).

11 U.S.C. § 1102(a)(3) (no committees in Subchapter V cases).

11 U.S.C. § 1189(a) (only the debtor may file a plan under Subchapter V).

Compare 11 U.S.C. § 1191 (confirming a Subchapter V plan) with section 1129.

11 U.S.C. §§ 1182(1)(A) and 101(51D) (definitions of small business debtor).

In re Hillman, No. 22-10175 (Bankr. N.D.N.Y. June 2, 2023) (winding down constitutes business activity).

11 U.S.C. §§ 1182(1)(A) and 101(51D). The courts are split as to whether or not the debts need to stem from a current business. Some courts have held the debts must come from the debtor’s current business activity. Others have not. David Cox and Caleb Chaplain, ABI Law Journal, October 2023.

11 U.S.C. §§ 1182(1)(A) and 101(51D) (debt limit).

Judicial Conference adjustment of dollar amounts pursuant to section 104(a), 84 F.R. 3488-01 (Feb. 12, 2019).

CARES Act, Pub. L. 116-136, 134 Stat. 281 (2020).

CARES Act § 1113(a), 134 Stat. 310-11 (increasing the debt limit).

COVID-19 Bankruptcy Relief Extension Act of 2021, Pub. L. 117-5 and the Bankruptcy Threshold Adjustment Act (2022), Pub. L. 117-151.

S. 4150, 118th Congress, § 2 (proposed 2024 extension).

Judicial Conference adjustment of dollar amounts under 11 U.S.C. § 104, effective April 1, 2025.

H.R. 7730, 119th Congress, Bankruptcy Threshold Adjustment Act of 2026 (passed the House Sept. 16 and the Senate Sept. 28, 2026).

Epiq Global, May 3, 2024 (April 2024 Subchapter V elections up 60% year-over-year).

Epiq Global, May 2, 2023 (Subchapter V filings up 81 percent year-over-year).

U.S. Trustee Program, Subchapter V statistical summary, cases through Sept. 30, 2024 (accessed Nov. 27, 2024).