Bankruptcy ✦ Subchapter V
Small Business Reorganization, Without Losing the Business.
Subchapter V of Chapter 11 was written for exactly the businesses we represent: Colorado companies with SBA loans, merchant cash advances, payroll tax, and vendor debt that need breathing room and a realistic plan, not a liquidation. Keep ownership, confirm a plan in months, and restructure the debt at small business scale.
Overview
What is Subchapter V?
Subchapter V is the small business track inside Chapter 11, added by the Small Business Reorganization Act in 2020. A business debtor with no more than $3,424,000 of debt, at least half of it from business activity, can elect it on the petition. The election removes the most expensive parts of a traditional Chapter 11: there is no creditors’ committee, no disclosure statement, and no absolute priority rule, so the owners keep the company as long as the plan commits three to five years of projected disposable income to creditors. A Subchapter V trustee is appointed to help get a plan confirmed, and the plan is due within 90 days of filing. Colorado cases are heard in Denver and can be run entirely by video for a business anywhere in the state.
- Owners keep equity over creditor objection (11 U.S.C. § 1191(c))
- Plan due in 90 days; confirmation typically in 4 to 6 months
- Only the debtor can file a plan; no competing creditor plans
- No creditors’ committee or disclosure statement
- Administrative expenses can be paid over the life of the plan
- Available to individuals whose debt is at least half business debt
Eligibility
Do you qualify?
| Requirement | Rule | Where it bites |
|---|---|---|
| Engaged in business | Person or entity engaged in commercial or business activities (§ 1182(1)) | A business that has already shut down can still qualify if it is winding up affairs; we evaluate this closely |
| Debt ceiling | Noncontingent, liquidated secured and unsecured debt of not more than $3,424,000 on the petition date | A pending bill would raise this to $7.5 million; contingent guarantee claims and disputed amounts often fall outside the count |
| Business debt share | At least 50% of the debt must arise from business activities | An EIDL loan, an SBA 7(a) guarantee, and merchant cash advances are business debt, which is how many owners qualify individually |
| Not a single-asset real estate debtor | Excluded by § 1182(1)(A) | Rental-property-only debtors use traditional Chapter 11 or Chapter 13 |
The debt ceiling is measured on the petition date, and the words noncontingent and liquidated do real work. A guarantee that has not been called, a lawsuit that has not gone to judgment, and a disputed MCA balance can each be excluded from the count. Getting an over-the-line business under the line is often an analysis, not an obstacle.
Where Subchapter V Fits
The cases we see most in Colorado
EIDL and SBA defaults
The loan is at Treasury, the 30 percent fee has been added, and offsets or garnishment have started. The stay stops the collection; the plan pays the SBA what the collateral and cash flow support. See SBA loans and business debt.
Merchant cash advances
Daily debits are eating the operating account and a confession of judgment is looming. The stay ends the debits; the plan restructures the balances, and usurious or mischaracterized advances can be challenged.
Payroll tax
Trust-fund taxes are priority claims paid in full over the plan, but the penalties are not, and the plan stops the IRS from levying the accounts while you catch up.
Contractors and service businesses
A bad job, a lost contract, or a lawsuit that cannot be paid at once. The plan converts a crisis into a three-to-five-year budget, and the business keeps its licenses, leases, and crews.
The Attorney-CPA Difference
The plan is a three-year forecast. We build it from your books.
Confirmation in Subchapter V turns on projected disposable income under § 1191(d): what the business can pay creditors after the expenses reasonably necessary to keep operating. That number comes out of your financial statements, and in most small businesses those statements need work before a court or a trustee will rely on them. We do that work in-house. We also handle the tax claims, which in a small business case are often the largest and the most negotiable.
- Books cleaned up and projections built before filing
- Cash collateral budget and monthly operating reports handled from day one
- IRS and Colorado Department of Revenue claims sorted and challenged when wrong
- Owner’s personal exposure planned alongside the business case
- Filing in days when a levy, offset, or MCA sweep leaves no time
Questions & Answers
Subchapter V questions, answered
What is the Subchapter V debt limit right now?
For cases filed in September 2026, $3,424,000 of noncontingent, liquidated secured and unsecured debt, at least half of which must come from business activity. Congress is in the final stage of raising it to $7.5 million: the Senate passed S. 3977 on August 3, 2026 and the House passed its version, H.R. 7730, on September 16, 2026, but the two versions have to be reconciled and signed before the higher limit applies. If you are between the two figures, timing the filing matters, and we are watching the bill.
Do I keep ownership of my business?
Yes. That is the main reason Subchapter V exists. The absolute priority rule that lets creditors take equity in a traditional Chapter 11 does not apply if the plan commits your projected disposable income for three to five years (11 U.S.C. § 1191(c)).
What does the Subchapter V trustee do?
The trustee appointed in a Colorado Subchapter V case does not take over the business. The trustee’s job under § 1183 is to facilitate a consensual plan, monitor operations, and in many cases act as the disbursing agent for plan payments. A cooperative relationship with the trustee is usually the shortest path to confirmation.
Can Subchapter V deal with my EIDL or SBA loan?
Yes. An EIDL or 7(a) loan is treated like any other claim: secured to the extent of the collateral’s value, unsecured for the rest, and paid under the plan accordingly. Subchapter V is often the emergency brake for a business whose government contract payments are being offset by Treasury or whose bank account has been swept by a merchant cash advance lender, because the stay starts the day the case is filed and a plan can be confirmed within months.
What about my personal guarantee?
A business Subchapter V case does not discharge the owner’s personal guarantee, and a creditor can pursue you personally unless the plan is structured to address it or you file your own case. Owners with large guarantees sometimes file an individual Subchapter V alongside the business, or a Chapter 7 or 13 depending on the numbers. Sequencing those cases is part of the planning.
How fast can a Subchapter V case be filed?
Days, when it has to be. When a levy, offset, or MCA sweep is draining the business, we can prepare and file a Subchapter V petition in a matter of days, and the automatic stay takes effect at filing. The plan is due 90 days later.
Keep the business. Restructure the debt.
A free Subchapter V analysis with an attorney-CPA: eligibility, what a plan would pay, and whether a workout would do the job without a filing.