Subchapter V of Chapter 11 of the U.S. Bankruptcy Code is a powerful and time and cost-efficient legal mechanism to address financial distress for certain small businesses and their owners. Without Subchapter V, most small businesses are not able to take advantage of the benefits of Chapter 11 because of the higher legal costs associated with non-Subchapter V cases. For those businesses that currently have less than $3,424,000 of total noncontingent and liquidated (the amount has already been calculated or is easily calculable) debt, whether secured or unsecured, Subchapter V is available as a bankruptcy option.
Individual owners of a small business may also qualify as a Subchapter V debtor if their own debts are under the above limit, and at least 50% of the debt was incurred from commercial or business activities. That option is advantageous over other bankruptcy pathways because Subchapter V can be used to address a collateral mortgage put on that owner’s primary residence if the proceeds from the secured loan were used for the business. We note that certain companies are not able to use Subchapter V, such as a business that owns a single lot or contiguous lots for a single development of real property where almost all of the gross revenue is generated with no other business other than operating its real estate. Those companies are still eligible for other reorganization or liquidation processes and we often represent them inside and outside of the bankruptcy process.
Certilman Balin’s Bankruptcy & Debtor/Creditor Rights practice group is well versed and experienced in all aspects of non-bankruptcy workouts, Federal bankruptcy cases, and, in cases where the Federal courts are not preferred, assignments for the benefit of creditors under New York State law. We regularly represent companies and individuals as debtors or creditors such as landlords, secured creditors, including banks and other lending institutions, trade creditors and other general creditors in such matters. Particular to Subchapter V, over the past several years, we have successfully confirmed cases for both businesses and individuals in the bankruptcy courts for both the Southern District and Eastern District of New York.
Our team can be reached at jmayall@certilmanbalin.com and rmccord@certilmanbalin.com.
