Subchapter 5 of Chapter 11 of the U.S. Bankruptcy Code is known as the Small Business Reorganization Act of 2019 (“SBRA”). Subchapter 5 bankruptcies have many benefits over Chapter 11 and Chapter 7 bankruptcies for small businesses.

In order to file a Subchapter 5 petition, the debtor must have less than $7.5 million in debt. The debtor may remain a “debtor in possession,” retaining authority to operate the business while a trustee performs administration of payments under a Bankruptcy Plan.

In contrast to a Chapter 11 bankruptcy, Subchapter 5 bankruptcies do not require a creditors committee or disclosure statements. Moreover, owners may retain equity even if not all creditors are paid in full. Importantly, Subchapter 5 bankruptcies authorize a small business debtor to modify a residential real estate mortgage to the extent that the proceeds from the loan were used in the business.

If you are considering declaring your business in bankruptcy, contact us so that we can discuss your options and whether a Subchapter 5 bankruptcy would suit your business.