Everett runs an equipment dealership in Clovis. Last spring a farm-services company wanted $160,000 in loaders and attachments on trade credit, and its officer signed a financial statement listing receivables the company did not have. The invoices went unpaid. In September the company filed a Subchapter V case in Albuquerque.
Does the lie still matter now? It can, but only if Everett files a complaint on time and votes the right way on the plan. Missing either step can quietly erase the fraud claim.
Can a company in Subchapter V be stuck with a fraud debt?
Every federal circuit court to rule says yes, if the plan is confirmed without creditor consent. Under 11 U.S.C. § 1192, a debtor whose plan is confirmed under § 1191(b) (a “cramdown”) is not discharged from any debt “of the kind specified in section 523(a).” Yet § 523(a) itself speaks of an “individual debtor,” and an LLC is not an individual.
The Fourth Circuit read § 1192(2) as borrowing a list of debts, not a class of debtors, in Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC), 36 F.4th 509 (4th Cir. 2022). The Fifth Circuit followed in Avion Funding, L.L.C. v. GFS Industries, L.L.C. (In re GFS Industries, L.L.C.), 99 F.4th 223 (5th Cir. 2024), where a cleaning company took a merchant cash advance, denied any plan to file, and filed two weeks later. It called Subchapter V a compromise: owners keep their equity without paying unsecured creditors in full, and the § 523(a) categories survive as the price.
The Eleventh Circuit joined them on July 9, 2025, in BenShot, LLC v. 2 Monkey Trading, LLC (In re 2 Monkey Trading, LLC), 142 F.4th 1323 (11th Cir. 2025). Judge Luck’s one-paragraph dissent sided with most bankruptcy courts, including In re Satellite Restaurants Inc. Crabcake Factory USA, 626 B.R. 871 (Bankr. D. Md. 2021), and the Ninth Circuit Bankruptcy Appellate Panel in Lafferty v. Off-Spec Solutions, LLC (In re Off-Spec Solutions, LLC), 651 B.R. 862 (B.A.P. 9th Cir. 2023). Fifteen months on, it is three circuits to none, and I found no Supreme Court petition.
Has the Tenth Circuit or a New Mexico bankruptcy court decided the § 1192 question?
No. The Tenth Circuit has not ruled, and the New Mexico bankruptcy court’s published opinions back to 2021 do not address it. The most detailed ruling inside the circuit is Marmic Fire & Safety Co. v. ETG Fire, LLC (In re ETG Fire, LLC), Adv. No. 24-1225 (Bankr. D. Colo. Mar. 17, 2025), which adopted the Fourth and Fifth Circuit reading and held that a company’s intent can be shown through its managers.
So the Albuquerque judge decides it fresh, with appeal to the Tenth Circuit Bankruptcy Appellate Panel or the district court and then the Tenth Circuit (28 U.S.C. § 158). Three circuits should carry weight, but the point is open.
What is the Rule 4007(c) deadline for a Subchapter V fraud claim?
Sixty days after the first date set for the § 341 meeting of creditors. Debts under § 523(a)(2), (4) and (6) are discharged unless the creditor asks the court to except them (§ 523(c)(1)). Fed. R. Bankr. P. 4007(c) sets the 60-day clock in Chapter 11 cases and allows more time only “on a party in interest’s motion filed before the time expires,” and Rule 9006(b)(3) closes the excusable-neglect door.
The Tenth Circuit calls it a “strict sixty-day time limit” (Themy v. Yu (In re Themy), 6 F.3d 688 (10th Cir. 1993)). Last month, in In re Ortega, No. 25-11139-j7 (Bankr. D.N.M. Sept. 15, 2026), a Las Cruces creditor holding a stipulated $150,000 fraud judgment missed the date by 24 days after a calendaring lapse and got no extension.
Subchapter V adds a squeeze. The plan is due 90 days after the order for relief (§ 1189(b)), which in a voluntary case is the filing date (§ 301(b)), so the complaint deadline can arrive before anyone knows whether the plan will be consensual. A timely motion to extend is possible, but I know of no Tenth Circuit or New Mexico ruling treating plan uncertainty as cause. File on time.
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Why does a creditor’s vote decide whether the fraud claim matters?
The § 523(a) exceptions ride only on a § 1192 discharge. If every impaired class accepts, the plan is confirmed under § 1191(a), and § 1181(c) leaves the discharge to § 1141(d). The company is discharged at confirmation, and the corporate carve-out in § 1141(d)(6) covers government fraud debts, False Claims Act-type recoveries and tax fraud, not a dealer’s invoice.
In In re American Dental of LaGrange, LLC, Adv. No. 24-01004 (Bankr. M.D. Ga. Jan. 31, 2025), a creditor filed its fraud complaint, objected to the plan, and then withdrew the objection by stipulation. The plan was confirmed as consensual, and the complaint was dismissed.
Doing nothing is also a vote. Under Heins v. Ruti-Sweetwater, Inc. (In re Ruti-Sweetwater, Inc.), 836 F.2d 1263 (10th Cir. 1988), a creditor who neither votes nor objects is deemed to accept, and the New Mexico bankruptcy court applied that rule in Subchapter V in In re Jaramillo, No. 21-10306-t11 (Bankr. D.N.M. Sept. 22, 2022). A class accepts when creditors holding at least two-thirds of the dollars and more than half the number of those voting say yes (§ 1126(c)), so how the plan classifies Everett matters.
What else can a New Mexico creditor do in the Subchapter V case?
A state-court fraud or Unfair Practices Act suit against the company is frozen by the automatic stay (§ 362(a)(1)), but a creditor can object to confirmation. The plan must be proposed in good faith (§ 1129(a)(3)) and include a liquidation analysis and projections (§ 1190), and a cramdown plan must commit three to five years of projected disposable income (§ 1191(c)). If the filing looks tactical, a motion to dismiss or convert for cause under § 1112(b) is available. A company in Chapter 7 gets no discharge at all (§ 727(a)(1)).
Check eligibility. For cases filed on or after April 1, 2025, Subchapter V is capped at $3,424,000 of qualifying debt (§ 101(51D), as adjusted); the firm’s post on contingent debt and the Alecto case covers that math. As of October 23, 2026, H.R. 7730 (raising the cap to $7.5 million) had passed both chambers but was unsigned; see the firm’s debt-limit post.
An owner’s personal guaranty is a separate claim. The company’s discharge does not release a guarantor (§ 524(e)), and in S-Tek 1, LLC v. Surv-Tek, Inc., Adv. No. 20-01074-j (Bankr. D.N.M. Sept. 19, 2022), the court refused to halt a creditor’s collection against a Subchapter V debtor’s guarantors. Whether the guaranty is enforceable is a state-law question.
How would Everett’s fraud claim play out?
Illustration only: the customer files on September 8, 2026, and the § 341 meeting is first set for October 9. Everett’s complaint is due Tuesday, December 8, 2026; electronic filing runs to midnight in the court’s time zone (Rule 9006(a)(4)), Mountain Standard Time by then. The plan is due December 7.
The complaint rests on § 523(a)(2)(B): a materially false written statement about the debtor’s or an insider’s financial condition, reasonably relied on and made with intent to deceive. A statement about even one asset counts as one about financial condition (Lamar, Archer & Cofrin, LLP v. Appling, 584 U.S. 709 (2018)), so an oral promise would not do. He must prove it by a preponderance (Grogan v. Garner, 498 U.S. 279 (1991)), and reliance will be contested. A state-law win is no shortcut: McCutcheon v. Davide, Adv. No. 25-1002-j (Bankr. D.N.M. Oct. 7, 2025), explains that an Unfair Practices Act violation needs neither intent to deceive nor reliance.
Say the plan pays trade creditors 20 cents on the dollar over three years. If his class accepts, he collects about $32,000 and the complaint likely fails. If it rejects and the plan is crammed down, the complaint decides whether the other $128,000 survives the § 1192 discharge.
| How the case ends | Discharge rule | Effect of Everett’s § 523 complaint |
|---|---|---|
| Consensual plan, § 1191(a) | § 1141(d) discharge at confirmation | Likely dismissed; (d)(6) does not reach private trade debt |
| Everett neither votes nor objects | Deemed acceptance under Ruti-Sweetwater | Same as consensual if his class goes along |
| Cramdown, § 1191(b) | § 1192 discharge after plan payments | Decides survival if the judge follows the three circuits |
| Converted to Chapter 7 | No discharge for an entity, § 727(a)(1) | Not needed against the company |
| Dismissed under § 1112(b) | No discharge | State-court remedies resume |
Frequently Asked Questions
Does a corporate Subchapter V debtor get a discharge of fraud debts?
Under a consensual plan, generally yes. Under a cramdown plan, the Fourth, Fifth and Eleventh Circuits hold that § 523(a) debts survive, and the Tenth Circuit has not decided the question.
When is the deadline to file a nondischargeability complaint in Subchapter V?
Sixty days after the first date set for the § 341 meeting, under Rule 4007(c). A motion to extend must be filed before that date, and excusable neglect is not a ground for a late extension.
Should a defrauded creditor vote against the Subchapter V plan?
Often, yes. The § 523(a) exceptions apply only if the plan is confirmed under § 1191(b), which requires an impaired class that has not accepted. In the Tenth Circuit, a creditor who neither votes nor objects can be deemed to accept.
Can I keep suing the company in New Mexico state court?
Not while the case is pending, unless the bankruptcy court grants relief from the automatic stay under § 362(d). The fraud question against the company is usually decided there.
Can I still collect on the owner’s personal guaranty?
Generally yes. Section 524(e) says the company’s discharge does not affect another party’s liability. If the owner files a separate bankruptcy, that case brings its own stay.
How North Star Law Firm Can Help
North Star Law Firm represents creditors and business owners in Subchapter V cases, including nondischargeability complaints, plan objections and ballot strategy. It also handles traditional Chapter 11 and other bankruptcy matters.
Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and Bankruptcy Court for the District of New Mexico and represents taxpayers before the IRS and the U.S. Tax Court. The firm works alongside New Mexico-licensed counsel on state-law questions. If a customer that lied about its finances has filed Subchapter V, contact North Star Law Firm.