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What are the benefits of a Subchapter V bankruptcy?

On Behalf of | Jun 1, 2022 | Corporate Bankruptcy & Restructuring

Subchapter V is a subsection of Chapter 11 bankruptcy. Lawmakers created this option with the intent to help small businesses survive after difficult times. It differs from a traditional Chapter 11 in that it generally costs less and has fewer procedural requirements.

Other benefits can include the following.

#1: A Subchapter V bankruptcy removes use of committees

More specifically, Subchapter V does not use a creditor committee as is usually used during a traditional Chapter 11 petition for bankruptcy relief. A creditor committee is a group that partakes in the bankruptcy process and advocates for the creditors.

The business seeking relief through bankruptcy generally bears the expense that comes with use of the committee, so in addition to having a strong advocate for creditors partaking in the bankruptcy proceeding the presence of the committee also increases the cost of the bankruptcy process.

#2: This version includes use of a trustee

The bankruptcy court appoints a trustee to assist during the process. This individual is not put in place to control the process but facilitate the plan and help guide negotiations with creditors.

#3: It also controls who gets to file the plan

Another benefit is the fact that only the applicant can file a reorganization plan. This gives the business more control over the proposals and better ensures it gets a plan that works towards future interests.

#4: There is generally no requirement for creditor approval

As discussed in more detail in a previous post, available here, another key benefit is the fact that the applicant does not need to receive creditor approval to move forward with a repayment plan.

Is there anything else we should know?

Business owners navigating this discussion should also discuss the possibility of a traditional Chapter 11 as well as a Chapter 7 bankruptcy. It is important to consider the benefits and risks of each option to better ensure you choose the strategy that works best for your business goals.

It is also important to note that these laws are constantly evolving. Lawmakers did not provide this option, for example, until after 2019. It is important to be prepared for potential changes. This could come as a result of some who face allegations of taking advantage of this process in an attempt to avoid a large settlement during tort cases. Most notable are the current filings by three entities associated with Alex Jones and his website Infowars. Mr. Jones faces allegations of defamation and other tort claims as a result of statements made concerning the 2012 Sandy Hook Elementary mass shooting. He filed for relief through this Subchapter V, allegedly to force a smaller settlement and help him retain certain assets.

Regardless of the motivation behind the filings, the allegations could lead to legislative reform. As such, it is important to discuss this option with legal counsel who stays abreast of current law and the impact it could have on your case.