Subchapter V: small business bankruptcy and its debt limit

Subchapter V is a streamlined form of Chapter 11 reorganization for small business debtors. The company usually keeps operating while it proposes a plan to pay creditors over time. To qualify, a debtor’s debts must be under a limit: the US Trustee Program says that for cases filed on or after June 21, 2024 the limit is the original amount in the Small Business Reorganization Act, as adjusted, which is $3,424,000. The higher temporary limit of $7.5 million expired on that date.

Subchapter V, Chapter 11 and Chapter 7

	Subchapter V	Standard Chapter 11	Chapter 7
Goal	Reorganize and keep operating	Reorganize and keep operating	Liquidate
Who runs the business	Usually the debtor	Usually the debtor in possession	A trustee sells non-exempt assets
Debt limit	$3,424,000 (US Trustee Program, cases filed on or after June 21, 2024)	None	None
Company survives	Usually	Usually	No; corporations and partnerships get no discharge

Questions to take to a bankruptcy lawyer

1. Are our total debts, as counted under the rules, below the current limit on the day we would file?
2. Can the business produce enough income to fund a plan?
3. Which assets are essential, and which could be sold or licensed to fund the plan?
4. What duties do we have toward customer data we hold?

Records and data in a reorganization

In Chapter 11 the debtor keeps operating, so its systems and records keep running. Any sale or licence of assets outside the ordinary course needs court approval. Some companies look at licensing de-identified operational records as one way to raise cash; in a bankruptcy that goes through the court, and customer personal information has its own rule, described in the consumer privacy ombudsman.