Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Key Takeaways
- Confirm the debt ceiling in force on your filing date; the $7.5 million limit expired in June 2024.
- The bankruptcy court confirms your plan, not the Subchapter 5 trustee.
- You can keep ownership over creditor objection by committing three to five years of disposable income.
- Your reorganization plan is due within 90 days of filing.
There are few things worse as a business owner to find yourself behind on certain types of debt. In previous years, many business owners with debt they cannot pay off on their own would file for Chapter 11 bankruptcy. That said, back in 2019, Congress enacted the Small Business Reorganization Act, thereby adding Subchapter 5 to Chapter 11 bankruptcy. For many, Subchapter 5 will prove to be a far more viable option than standard Chapter 11. Please continue reading and reach out to our experienced Rockland County bankruptcy attorney to learn more about Subchapter 5 bankruptcy in New York and how our legal team can assist you through the process ahead. Here are some of the questions you may have:
How Do I Know if I Can File for Subchapter 5 Bankruptcy in New York?
Ultimately, two questions will determine this: if your business fits within the eligibility limits, and how you make the election once it meets the requirements.
Which Businesses Qualify
In order to qualify for Subchapter 5 bankruptcy, your small business must fall below the debt ceiling, which currently sits at $3,424,000 in noncontingent, liquidated debts, and at least half of your pre-petition debts must be the result of commercial business activities. Additionally, you cannot be the owner of a single-asset real estate business.
Why the Debt Ceiling Keeps Moving
You should note that the debt ceiling is not set in stone and may change over time. For example, a temporary $7.5 million ceiling was applied to cases filed between March 2020 and June 21, 2024. When it expired, the limit was reverted back to the original figure and subsequently adjusted for inflation. Congress has revisited this number repeatedly, so you should confirm the amount in force on the date you intend to file, rather than assuming the number you read months earlier is correct.
Electing Subchapter 5 and Confirming Your Plan
To file, you and your attorney will elect Subchapter 5 on the Chapter 11 petition. You will then file various documents with the court to establish a reorganization plan, which the bankruptcy court must approve before the plan takes effect. The Subchapter 5 trustee appointed to your case will work in tandem with you and your creditors to establish a fair plan, but approval is ultimately the court’s decision, not the trustee’s.
What Makes Subchapter 5 Bankruptcy Better than Chapter 11 Bankruptcy?
Just some of the benefits provided by Subchapter 5 bankruptcy, as opposed to Chapter 11 bankruptcy, are as follows:
- No unsecured creditor committee
- No absolute priority rule, which means you can keep your ownership stake in the business even if creditors object to the plan, provided the plan is fair and equitable and commits all of your projected disposable income for three years, or up to five if the court sets a longer term
- No quarterly trustee fees
How Quickly Do I Have to File a Reorganization Plan?
Subchapter 5 adheres to a tighter schedule than a standard Chapter 11 case, and the plan deadline is the one that catches out most business owners.
You Have 90 Days From Filing
Once you file your petition, you will have 90 days from the filing date to submit your reorganization plan, unless the court extends that period for cause. In practice, this means you must begin building the plan immediately, rather than having a few weeks to let the dust settle.
Only You Can Propose the Plan
One feature of Subchapter 5 works in your favor here. Only you, the debtor, may file a plan. In a standard Chapter 11 case, creditors can eventually propose a competing plan of their own, and that possibility does not exist in a Subchapter 5 case.
If you have any additional questions about Subchapter 5 bankruptcy in New York, please don’t hesitate to give us a call or contact us online today. We believe that small business owners in New York State deserve a fair shake, and we are here to help you and your business in any way we can. With decades of experience under our belt, you can feel confident in your decision to turn to the Law Offices of Allen A. Kolber, Esq.
Contact an Experienced New York Bankruptcy Attorney
Bankruptcy can be an incredibly overwhelming experience, which is why it’s imperative to understand that you do not have to navigate this process alone. At The Law Offices of Allen A. Kolber, Esq., we are ready to help you through these difficult times. When you need help, contact our firm today to learn more.
