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Top Ten Reasons Why a Small Business Chapter 11 Under Subchapter V of the Bankruptcy Code May Be Better


A small business Chapter 11 under Subchapter V of the Bankruptcy Code has many more advantages than the traditional Chapter 11. Our firm obtained the first confirmed Chapter 11 plan under Subchapter V in the State of New Jersey. This blog highlights 10 reasons why small business chapter 11s may be the better route. Here are the top reasons why a small business might find Chapter 11 Subchapter V more advantageous than traditional Chapter 11:

1. Small Business Chapter 11 Simplified Process:

Subchapter V streamlines the Chapter 11 process for small businesses, making it more accessible and less burdensome. The plan can be confirmed quicker and with less legal time and expense. The costs are many times cheaper because of the less stringent reporting and procedural requirements. The documents required for a successful plan confirmation are much simpler.

2. Small Business Chapter 11 More Cost-Effective:

Chapter 11 Subchapter V is generally less expensive than traditional Chapter 11 due to reduced administrative costs and reporting requirements. A disclosure statement, which is very involved in a traditional Chapter 11 confirmation process, is not required.

3. Small Business Chapter 11 has Faster Confirmation:

Subchapter V aims for a quicker confirmation process, allowing the business to emerge from bankruptcy faster, which can be crucial for small businesses. You always want to emerge from bankruptcy as fast as you can.

4. More Control for Business Owners:

In Subchapter V, small business owners often retain more control over their company&#39;s operations compared to traditional Chapter 11. Control over business operations is key and leads to less expense.

5. Small Business Chapter 11 has Debt Repayment Plan Flexibility:

In a traditional Chapter 11, an impaired class of creditors must vote in favor of your plan or it is virtually impossible to obtain confirmation of the plan. In a Subchapter V, there is no requirement that an impaired class vote in favor of the plan. Thus, a plan can be confirmed over the objection of creditors.

6. No Unsecured Creditor Committee in Small Business Chapter 11:

Unlike traditional Chapter 11, Subchapter V may not require the formation of an unsecured creditor committee, simplifying the negotiation process. An unsecured creditor committee in a traditional Chapter 11 case makes the process much more adversarial and time consuming. Without it, the case becomes much more streamlined with the debtor retaining more control. The appointed trustee has a much different function than in a traditional Chapter 11 and has much more incentive in helping to obtain a confirmed plan.

7. Reduced Reporting Requirements in Small Business Chapter 11:

The reporting and disclosure requirements are often less stringent in Subchapter V, reducing the administrative burden on small businesses.

8. Ownership Retention in Small Business Chapter 11 More Likely:

Small business owners may find it easier to retain ownership of their business under Subchapter V, even if there is a cramdown of certain debts. In Subchapter V, there is no absolute priority rule. This means that shareholders can retain an ownership interest even where creditors in a higher priority class are not being paid in full.

9. Expedited Timeline for Plan Approval:

Subchapter V sets a faster timeline for plan approval, enabling the business to move through the bankruptcy process more efficiently.

10. Easier for Smaller Cases:

Subchapter V is specifically designed for small businesses with debts below a certain threshold, making it a more suitable option for businesses with lower liabilities.

It's crucial to note that the effectiveness of Subchapter V depends on the specific circumstances of each case. Consulting with a bankruptcy attorney is essential to determine the best course of action for a particular small business facing financial challenges.

At our firm, we have an extensive bankruptcy department devoted exclusively to solving your
bankruptcy needs. Please give our office a call to discuss your best options.


John J. Scura III

John fights hard for his clients and tries to educate them so they understand what is going on with their particular legal problem. John has been Certified by The Supreme Court of New Jersey as a Civil Trial Attorney. Whether it is a personal injury case, bankruptcy case, litigation case or other type of matter, John wants his clients to participate in the decision making process toward solving their problem in the best way possible.

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