Subchapter V Bankruptcy: A Faster Option for Small Businesses

Small business owners in financial trouble have more options than Chapter 11 bankruptcy, especially in Wisconsin. Subchapter V bankruptcy is a more affordable option that, like Chapter 11, offers reorganization and restructuring so the best parts of your company can continue to operate.

Consulting an experienced business bankruptcy attorney about your options may preserve jobs and restore financial stability. Subchapter V offers many of the same benefits of Chapter 11 bankruptcy more efficiently and at a lower cost for those who qualify.

Why Small Businesses Should Consider Subchapter V Bankruptcy

Created in 2019 by the Small Business Reorganization Act, Subchapter V is a simplified process for reorganization and recovery. The benefits of this process were designed to help businesses reduce debt and reorganize to maintain cash flow and reduce pressure from vendors as quickly as possible.

Benefits of Subchapter V include:

• Lower administrative costs
• Shorter timelines
• Elimination of creditor committees in most cases
• Streamlined rules

While a Subchapter V bankruptcy is more efficient for a small business, it also comes with tighter deadlines. Under this provision a reorganization plan must be submitted within 90 days of filing for bankruptcy.

The quarterly trustees’ fees that are charged in Chapter 11 bankruptcy cases are avoided by those who file for Subchapter V, as is the time and expense involved in forming a committee of unsecured creditors. In Chapter 11 bankruptcy, the committee of creditors is used to advise the trustee, sometimes blocking the applicant’s reorganization plan.

Details of Subchapter V Bankruptcy

To qualify for Subchapter V bankruptcy, a small business may not have debts (secured and unsecured combined) exceeding $3,024,725 (2026; periodically adjusted). The debts accrued must be primarily a result of doing business, and the business cannot be publicly traded or based on a single asset of real property.

Ways that Subchapter V bankruptcy helps business owners retain control include:

• The business owner is the only one who may submit a reorganization plan.
• A “fair and equitable” plan can be confirmed by the court even if creditors disagree.

• Owners may retain equity in the business even if all creditors are not paid in full, modifying the standard Chapter 11 “absolute priority rule” in which all creditors had to be paid off first. Under Subchapter V, business owners must commit funds to the reorganization plan for 3-5 years.
• Customer relationships are preserved, enhancing reorganization opportunities, because the debtor remains in possession of the business operations and assets.

Small business bankruptcy in Wisconsin

Bankruptcy is a federal court process that is filed in either the Eastern or Western district, depending upon where the business is located. Local branches of federal bankruptcy court  offer resources to business owners considering Subchapter V, including sample reorganization plans. 

Wisconsin offers businesses an alternative to bankruptcy through Chapter 128 debt relief programs. This method provides state court supervision of debt discharge and restructuring without the negative stain of bankruptcy on the applicant’s credit report. It’s an alternative that’s recommended to those with substantial unsecured debt and can involve negotiating repayment terms with local creditors.

Is Subchapter V Right for Your Business?

It’s never too early to consult with an experienced business bankruptcy attorney from Kerkman and Dunn if you’re having solvency issues. Attorneys with combined decades of experience are able to assess and steer businesses to the right form of bankruptcy for their situation. Finding the right path forward and starting over is what bankruptcy was designed to do.