Bankruptcy ✦ Subchapter V
Chapter 11 Power, Built to Small Business Scale.
For decades Chapter 11 was a tool small businesses could technically use and practically couldn’t afford. The Small Business Reorganization Act changed that in 2020. Subchapter V strips out the committee fights, the disclosure-statement battles, and the rule that let creditors take your equity, and replaces them with a fast, owner-friendly track built for the businesses that keep New Mexico running. Most owners have never heard of it.
Eligibility
Does your business qualify?
Subchapter V is open to a person engaged in commercial or business activity, whether a corporation, LLC, partnership, or the individual owner, whose total noncontingent, liquidated debts are at or below $3,424,000, with at least half of that debt arising from business activity (11 U.S.C. § 1182(1)). That cap reflects the April 1, 2025 inflation adjustment. Congress has repeatedly moved to restore the pandemic-era $7.5 million ceiling, so if your debt falls between those numbers, ask before you assume anything. Single-asset real estate debtors are excluded.
One point worth underlining: an individual who personally guaranteed business debt can often file Subchapter V personally. For a New Mexico owner whose company failed but whose guarantees followed them home, that is frequently the whole ballgame.
- Debts at or below $3,424,000, at least half from business activity
- Corporations, LLCs, partnerships, and individual owners all qualify
- Personal guarantees of business debt usually count as business debt
- Plan due 90 days after filing (§ 1189(b))
- No creditors’ committee and no disclosure statement (§ 1181(b))
- No quarterly U.S. Trustee fees
The Law
What makes Subchapter V better for owners?
The differences from traditional Chapter 11 all cut the same direction: faster, cheaper, and the owner keeps the company.
| Issue | Traditional Chapter 11 | Subchapter V |
|---|---|---|
| Who can file a plan | Creditors can file competing plans once exclusivity lapses | Only the debtor, ever (§ 1189(a)) |
| Plan deadline | None fixed; cases can drift for years | 90 days from the petition (§ 1189(b)) |
| Creditors’ committee | Standard, funded by the estate | None unless the court orders one (§ 1181(b)) |
| Disclosure statement | Required and litigated | Not required (§ 1181(b)) |
| Owner keeps equity | Absolute priority rule; owners may have to buy back their own company | Rule eliminated; owners retain equity by committing disposable income (§ 1191(c)) |
| Confirming over objections | Requires an impaired accepting class | Court can confirm with no accepting class if the plan is fair and equitable (§ 1191(b)) |
A Subchapter V trustee is appointed in every case, but not to run your business. The statute assigns the trustee a facilitator’s role, helping the debtor and creditors reach a consensual plan (§ 1183(b)(7)). You stay in possession and in control.
What does a Subchapter V plan look like?
The core bargain is simple. Commit the business’s projected disposable income, meaning what it earns beyond what is reasonably necessary to keep operating, to creditors for three to five years (§ 1191(c)(2)). Secured debts can be restructured, bad leases rejected, priority taxes paid over time. At the end, remaining unsecured balances are discharged. If the plan is consensual, discharge enters at confirmation. If the court crams it down under § 1191(b), discharge follows completion of the plan payments (§ 1192). Either way, the owner still owns the company on the other side.
Why it fits New Mexico businesses
New Mexico’s economy runs on exactly the businesses Subchapter V was written for: contractors, trades, restaurants, clinics, trucking companies, family LLCs. The bankruptcy infrastructure here helps too. One statewide district, hearings routinely held by video, and a bench accustomed to closely held businesses. A Subchapter V case for a business in Las Cruces or Farmington no longer means months of courthouse trips; it means Zoom hearings between customer appointments. And when the creditor mix includes the New Mexico Taxation and Revenue Department alongside the IRS, which happens constantly given how gross receipts tax assessments accumulate, the plan has to treat state and federal tax claims correctly. That intersection is where this firm works every day.
Ninety days is a sprint. Start in shape.
Subchapter V compresses everything a reorganization needs into three months: a credible cash-flow projection, a disposable-income calculation the trustee will accept, a liquidation analysis, and tax treatment that doesn’t blow up the plan. That is a financial-modeling sprint with legal consequences. One professional doing both halves means nothing gets lost between the lawyer and the accountant, and nobody sends a second invoice.
The Attorney-CPA Difference
The plan is a financial model wearing a court caption.
- Eligibility and debt-cap analysis before anything is filed
- Projections and disposable-income calculations built to trustee standards
- IRS and New Mexico GRT claims treated correctly the first time
- Personal-guarantee exposure for owners handled inside the same strategy
Questions & Answers
Subchapter V questions, answered
Do I lose ownership of my company?
No. Subchapter V eliminated the absolute priority rule for these cases. You keep your equity by committing the business’s disposable income to the plan, even if unsecured creditors vote no. That single change is why Subchapter V exists.
How fast does it move?
A status conference within 60 days (§ 1188), your plan due within 90 (§ 1189(b)). Many consensual Subchapter V plans confirm within four to six months of filing, which in reorganization time is a sprint.
My business already closed, but the guarantees followed me. Can Subchapter V help me personally?
Often yes. Individuals whose debts are primarily from business activity, including personal guarantees, can qualify. A three-to-five-year plan usually beats the alternative, which is a decade of judgment collection against everything you build next.
What happens to payroll and gross receipts tax debt?
Priority tax claims are paid through the plan over time, and penalties often ride as unsecured claims. The personal side matters just as much: trust-fund liability under 26 U.S.C. § 6672 federally, and responsible-person exposure for New Mexico GRT. We build the plan around both, not just the company’s half.
Is my debt too big for Subchapter V?
The current ceiling is $3,424,000 in qualifying debt, but contingent and disputed debts may not count toward the cap. Do not self-disqualify from a lawsuit you are still fighting. If you are truly over the line, traditional Chapter 11 still works, and we handle those too.
Ninety days to a plan. Three years to daylight. You keep the keys.
If your business owes less than about $3.4 million and still has a reason to exist, Subchapter V deserves a serious look before you sign anything with a debt-settlement company or another merchant cash advance.