3 Points to Know on Subchapter V of Chapter 11 Bankruptcy

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Bankruptcy

Subchapter V of Chapter 11 Bankruptcy is a relatively new addition to the United States Bankruptcy Code, introduced as part of the Small Business Reorganization Act of 2019. It is designed to make the Chapter 11 bankruptcy process more accessible and less expensive for small businesses. Here are three important points to know about or your NY tax attorney must tell you:

Eligibility Requirements

To be eligible for Subchapter V of Chapter 11 Bankruptcy, a business must have no more than $7,500,000 in secured and unsecured debt. This is a significant boost from the previous threshold of $2,725,625, which means that more small businesses can now take advantage of the benefits of Chapter 11 bankruptcy. Additionally, the business must be primarily engaged in commercial or business activities and cannot be a single-asset real estate operation.

The idea behind Subchapter V is to provide small businesses with a streamlined bankruptcy process that allows them to reorganize and emerge from bankruptcy more quickly and efficiently. To that end, Subchapter V eliminates many of the more complex and time-consuming requirements of traditional Chapter 11 bankruptcy, such as filing a detailed disclosure statement and obtaining approval of a restructuring plan from creditors.

The Role of the Trustee

Another important aspect of Subchapter V of Chapter 11, Bankruptcy, is the role of the trustee. A trustee is appointed to oversee the entire process and ensure that creditors are treated fairly. In Subchapter V, however, the role of the trustee is somewhat different.

Under Subchapter V, the debtor remains in possession of their property and continues to operate their business while the bankruptcy process is underway. However, a trustee is appointed to oversee the case and assist the debtor in developing a reorganization plan. The trustee’s role is to facilitate negotiations between the debtor and their creditors and to make recommendations to the court regarding the feasibility of the debtor’s proposed plan.

The trustee is also responsible for ensuring that the debtor makes timely payments under the plan and that all parties are treated fairly throughout the process. However, the trustee is not responsible for running the business or making day-to-day decisions; that remains the debtor’s responsibility. Remember this in case your NY tax attorney glosses it over.

Advantages of Subchapter V

There are several advantages to choosing Subchapter V of Chapter 11 Bankruptcy over traditional Chapter 11. First and foremost, Subchapter V is designed to be less expensive and time-consuming than traditional Chapter 11. This is because many of the more complex and time-consuming requirements of traditional Chapter 11 have been eliminated.

Another advantage of Subchapter V is that it allows small businesses to retain more control over their reorganization process. Because the debtor remains in possession of their property and continues to operate their business, they have more say in the decisions made during the bankruptcy process.

Finally, Subchapter V gives small businesses more flexibility in their reorganization plan structure. Under traditional Chapter 11, the debtor must obtain approval for their reorganization plan from their creditors. This can be lengthy and difficult, and creditors may object to certain aspects of the plan.

In Conclusion

Subchapter V of Chapter 11 Bankruptcy is a relatively new addition to the United States Bankruptcy Code designed to make the Chapter 11 bankruptcy process more accessible and less expensive for small businesses. To take advantage of Subchapter V, a business must meet certain eligibility requirements and work with a trustee to develop a reorganization plan. 

However, there are many advantages to choosing Subchapter V over traditional Chapter 11, including lower costs, more control over the process, and more flexibility regarding how the reorganization plan is structured.

Reorganize with the Law Offices of Stephen B. Kass

Our law firm provides exceptional legal counsel in bankruptcy, including Chapter 11 reorganization filings for businesses with high tax debt, Chapter 11 filings for individuals with significant liabilities, Tax Litigation and Agreements with the Internal Revenue Service (IRS), and Debt Negotiations with Creditors. 

Additionally, we offer expertise in Commercial Real Estate, Real Estate Finance, and Real Estate Development. Talk to a NY tax attorney now by calling (212) 843-0050 or filling out our contact form on our About Page.

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