Subchapter V Bankruptcy Protection Deadline Expires: A Look at its Impact on Small Businesses”.

The Subchapter V bankruptcy protection filing, which provided relief for small businesses with less than $7.5 million in debt, has expired. With the failure of a bill to make this debt limit permanent, the threshold reverted back to $3 million on June 21. However, this debt limit was originally adjusted for inflation. Originally, businesses with less than $2.75 million in debt could file under Subchapter V, but this limit was extended to $7.5 million in March 2020 due to the pandemic.

This filing type was created as part of the Small Business Reorganization Act in 2020, making it cheaper and less time-consuming than the traditional Chapter 11 bankruptcy filing. Subchapter V filings come with several benefits, including shorter deadlines for filing reorganization plans, greater flexibility in negotiating restructuring plans with creditors, and no requirement to pay U.S. Trustee quarterly fees. A trustee is appointed for each case to work with the small business debtor and creditors to facilitate a reorganization plan.

According to data from the U.S. Trustee Program, Subchapter V filers had a higher rate of plans confirmed by a judge (51%) compared to other types of bankruptcy protection filers (31%) between 2020 and 2023