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While Chapter 11 can provide extraordinary relief in terms of reducing debt and increasing cash flow, the costs and burdens have traditionally been prohibitive for smaller businesses. That changed with the Small Business Reorganization Act (SBRA) that went into effect in 2020. The SBRA created a new streamlined version of Chapter 11 called Subchapter V (or Subchapter 5) for companies with debts below a certain threshold.

 

As of April, 1, 2025, the debt limit to qualify for Subchapter V is $3,424,000. This amount does not include debts that are disputed or contingent or unliquidated, so in many situations businesses with considerably more debt will qualify. Pending legislation proposes to increase the debt limit back to $7.5 million.

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This federal program offers smaller enterprises the opportunity to right-size debt owed to banks, the SBA, trade creditors, and others, while protecting existing ownership and control. Our Nashville-based Subchapter V lawyers have confirmed Plans for companies across the spectrum of industries and are authorities on how to best use this game-changing business tool.

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If a business is struggling under the weight of too much debt, and it qualifies for Subchapter V, there is little reason to consider filing a traditional Chapter 11 case. As discussed in Subchapter V vs. Chapter 11, Subchapter V provides a faster, less expensive, more certain path to debt restructuring that protects the existing owners and their control of the business.

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Individuals who are engaged in business or commercial activities are also eligible for Subchapter V relief. The benefits can be substantial for a business owner who has guaranteed company debts or used home equity to finance a business.