Subchapter 5 vs. Chapter 7 vs. Chapter 11 Business Bankruptcy | What is the Difference?

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As a business owner, you hope that you can develop a successful business that makes a profit, but sometimes things don’t go as planned. If you are looking to file for bankruptcy, it may be difficult to decipher which type will best get you out of your unfortunate situation. Continue reading to learn the differences between Chapter 7, Subchapter 5, and Chapter 11 business bankruptcy and how an experienced Rockland County business bankruptcy attorney at the Law Offices of Allen A. Kolber, Esq., P.C. can help you navigate these options.

What is Chapter 7 business bankruptcy?

Chapter 7 business bankruptcy is also known as liquidation bankruptcy. So when you file, you will liquidate your business to pay off as much debt as you possibly can. If the debt of your company is greater than the assets it holds, then Chapter 7 bankruptcy may be your best option. Filing also may be ideal if your business exhibits the following characteristics:

  • If your business has little or no potential for profit.
  • If your business offers a redundant or commonplace product or service.
  • Debt restructuring is not an option because of extensive debts.

What is the difference between Subchapter 5 bankruptcy and Chapter 11 bankruptcy?

Back in 2019, Congress enacted the Small Business Reorganization Act, thereby adding Subchapter 5 to Chapter 11 bankruptcy. To file for Subchapter 5 business bankruptcy, your small business must have less than $7.5 million in debt and that at least half of your pre-petition debts are from commercial business activities. Additionally, you cannot be the owner of a single asset real estate business.

Contrastingly, Chapter 11 business bankruptcy allows your business to continue operations and receive income. This will allow you to keep all your employees, in exchange for creating a five-year repayment plan. Additionally, Chapter 11 bankruptcy halts all collection activities, which will prevent vendors, banks, or creditors from any collection activities. In fact, Chapter 11 even allows businesses to keep a line of credit.

What benefits does Subchapter 5 bankruptcy have over Chapter 11 bankruptcy?

For many, Subchapter 5 business bankruptcy will prove to be a far more viable option than standard Chapter 11. Some of the benefits provided by Subchapter 5 bankruptcy are as follows:

  • No unsecured creditor committee.
  • No absolute priority rule, which means you can reorganize your business plan even without unanimous agreement by creditors.
  • No quarterly trustee fees.

If you have any additional questions regarding which bankruptcy option is in your best interest, do not hesitate in reaching out to a skilled Chapter 11 business bankruptcy attorney today.

Contact our experienced New York firm

Bankruptcy, for many people, is a frightening endeavor. Fortunately, with the help of an experienced attorney, it does not have to be. If you require the services of an experienced Business Law or Bankruptcy attorney, contact the Law Offices of Allen A. Kolber, Esq. today to schedule a consultation and discuss your options. We will have your back every step of the way.