Chapter 11 Subchapter V Bankruptcy for Nevada Small Businesses

A viable business can still be overwhelmed by SBA loans, rent arrears, tax obligations, litigation, merchant financing, or debt accumulated during and after the COVID-19 disruption. Chapter 11 Subchapter V—sometimes searched as “Subchapter 5”—is a streamlined reorganization process for eligible small-business debtors. It can allow a business to continue operating while proposing a court-supervised plan to address its debts.

Subchapter V is not simply a payment pause. It moves quickly, demands accurate financial reporting, and requires a feasible strategy. Nevada Bankruptcy Group helps owners evaluate eligibility, immediate cash needs, secured debt, personal guarantees, and whether the business can support a confirmable plan.

Facing a default, lawsuit, levy, repossession, or SBA collection issue? Early planning matters because the debtor generally must file a Subchapter V plan within 90 days after the bankruptcy case begins.

What is Subchapter V?

Congress created Subchapter V within Chapter 11 to make qualifying small-business reorganizations more efficient. The debtor usually remains in possession of its assets and continues operating, subject to Bankruptcy Code duties and court oversight. A Subchapter V trustee is appointed in every case to facilitate development of a consensual plan and perform other statutory duties.

Compared with a traditional small-business Chapter 11 case, Subchapter V offers several potential advantages:

• only the debtor may file a plan;
• the plan is generally due within 90 days, subject to a limited extension standard;
• the court generally holds an early status conference;
• a separate disclosure statement is generally not required unless the court orders otherwise;
• an unsecured creditors’ committee is generally not appointed unless ordered for cause;
• U.S. Trustee quarterly fees are not charged; and
• a plan may be confirmed without an accepting impaired class if the statutory requirements for a fair and equitable nonconsensual plan are met.

The U.S. Trustee Program describes Subchapter V’s shorter deadlines, appointed trustee, added flexibility, and lack of quarterly U.S. Trustee fees. U.S. Trustee Program — Subchapter V

Who may qualify?

Eligibility is fact-specific. For cases commenced on or after June 21, 2024, the U.S. Trustee Program states that the adjusted Subchapter V debt limit is $3,424,000. The temporary $7.5 million limit expired on June 21, 2024. The applicable limit and all other eligibility requirements should be verified on the filing date. U.S. Trustee Program — Subchapter V

In general, a qualifying debtor must:

• be a person or entity engaged in commercial or business activity, including in some circumstances a debtor winding down former business activity;
• have aggregate noncontingent, liquidated secured and unsecured debts within the applicable statutory limit, excluding specified debts owed to insiders or affiliates;
• have at least 50% of those debts arise from commercial or business activities; and
• not be excluded by the rules governing single-asset real-estate debtors, public companies, and specified affiliates.

Debt characterization can be disputed. Contingent, unliquidated, insider, affiliate, secured, and disputed claims require document-level analysis. Eligibility should be calculated before filing and checked again on the petition date.

When Subchapter V may make sense

Subchapter V is designed for reorganization, not for preserving a business that has no viable future. A strong candidate often has:

• a product, service, location, contract, license, or workforce worth preserving;
• dependable current revenue or a credible near-term path to positive cash flow;
• debt service that is unsustainable under current terms but potentially manageable if restructured;
• accurate books and the ability to produce prompt monthly reports;
• management capable of operating under court and trustee scrutiny;
• access to cash needed for payroll, taxes, insurance, professional fees, and ordinary operations; and
• a feasible plan that treats secured, priority, and unsecured claims as the law requires.

Warning signs include continuing operating losses without a funded turnaround, unreliable financial records, unpaid post-filing taxes, unauthorized use of cash collateral, unresolved fraud or transfer issues, and no realistic source of plan payments.

The accelerated Subchapter V timeline

Subchapter V compresses the planning period:

1. Before filing: Build 13-week cash flow, identify cash collateral, value assets, review liens and guarantees, prepare first-day needs, and test plan feasibility.
2. Petition and election: File Chapter 11 and elect Subchapter V treatment if eligible.
3. Early administration: The U.S. Trustee appoints a Subchapter V trustee. The debtor attends required interviews and the meeting of creditors and begins regular reporting.
4. Status report: The debtor generally files a report describing efforts to achieve a consensual plan no later than 14 days before the status conference.
5. Status conference: The court generally holds the conference within 60 days of filing.
6. Plan filing: Only the debtor may file a plan, generally within 90 days after the order for relief. The court may extend that deadline only under the statutory standard. U.S. Trustee Program — Subchapter V
7. Voting and confirmation: Creditors receive notice and may vote or object. The debtor must prove that the plan meets confirmation requirements.
8. Performance and discharge: The timing and scope of discharge, and the trustee’s continuing role, differ between consensual and nonconsensual plans.

Because the plan deadline arrives quickly, the best Subchapter V work often begins before the petition is filed.

What happens to SBA 7(a) and EIDL debt?

Subchapter V can provide a forum to treat secured, priority, and unsecured claims through a plan, but it does not automatically erase collateral rights or a nondebtor’s personal guaranty.

SBA 7(a)

A participating lender usually makes and services a 7(a) loan, while SBA guarantees an eligible portion for the lender. The borrower remains liable. SBA Form 148 states that individuals owning 20% or more of a 7(a) or 504 applicant must provide an unlimited personal guaranty, although the executed documents control each case. SBA Form 148 — Unconditional Guarantee

The reorganization analysis should address the lender’s lien priority, collateral value, adequate protection, arrears, interest, maturity, covenants, guarantors, and whether the guaranteed portion has been purchased by SBA.

COVID EIDL

COVID EIDL loans were made directly by SBA. SBA’s program information states that collateral was required above $25,000 and a personal guaranty above $200,000. SBA — About COVID-19 EIDL

The reorganization analysis should also review the executed EIDL documents, servicing notices, collateral, payment history, and any federal collection notices. Administrative servicing options change over time and should be verified directly with SBA for the specific loan.

Personal guarantees remain a separate problem

A plan for a corporation or LLC generally restructures the debtor’s obligations; it does not automatically discharge a nonfiling owner’s guaranty. The owner may need a coordinated personal-bankruptcy or nonbankruptcy strategy. That issue should be identified before the company commits to a plan it cannot realistically perform while its owners face separate collection pressure.

How a Subchapter V plan works

A plan describes how the debtor will treat its creditors and fund ongoing obligations. Depending on the facts and applicable law, it may:

• cure or restructure secured debt;
• pay priority claims as required;
• assume, assign, cure, or reject executory contracts and unexpired leases;
• sell unnecessary assets;
• resolve disputed claims;
• commit projected disposable income or property of equivalent value for a three-to-five-year period in a nonconsensual plan; and
• preserve ownership without satisfying the traditional Chapter 11 absolute-priority rule in the same way, provided all Subchapter V confirmation requirements are met.

Confirmation is never automatic. The plan must be proposed in good faith, be feasible, comply with the Bankruptcy Code, and provide the required treatment to creditors. A consensual plan is normally preferable because it can reduce dispute, cost, and post-confirmation trustee involvement.

Cash collateral and the first weeks of the case

Cash in a deposit account and proceeds of receivables or inventory may be a lender’s cash collateral. A debtor generally may not use cash collateral without the secured party’s consent or court authorization. A business that cannot fund payroll and ordinary expenses without disputed cash collateral needs a first-day strategy.

Before filing, assemble:

• recent balance sheets, profit-and-loss statements, cash-flow statements, and tax returns;
• a weekly 13-week cash-flow forecast;
• accounts-receivable and accounts-payable aging;
• payroll, sales, and other tax records;
• all SBA, EIDL, bank, lease, factoring, and merchant-finance documents;
• UCC searches and a collateral schedule;
• insurance, licenses, contracts, and leases;
• owner compensation, draws, loans, and insider transactions;
• litigation, levy, foreclosure, and repossession notices; and
• realistic projections supporting plan payments.

Subchapter V compared with Chapter 7 liquidation

Subchapter V reorganization	Chapter 7 business liquidation
Business usually continues to operate	Business commonly ceases operations and winds down
Debtor usually remains in possession	Trustee controls estate assets
Requires a feasible court-confirmed plan	Assets are administered and distributed under Chapter 7 priorities
May restructure debt while preserving enterprise value	May be more efficient when no viable operation remains
Requires ongoing reporting and plan performance	Business entity generally receives no discharge

Read about Chapter 7 business liquidation involving SBA and EIDL debt or compare Chapter 7 and Chapter 11.

Frequently asked questions

Is Subchapter V the same as “Subchapter 5”?

Yes. People often say or search “Subchapter 5,” but the Bankruptcy Code formally labels it Subchapter V of Chapter 11.

What is the Subchapter V debt limit?

For cases commenced on or after June 21, 2024, the U.S. Trustee Program states that the adjusted limit is $3,424,000 for qualifying noncontingent, liquidated secured and unsecured debts, after specified exclusions. The limit is adjusted periodically and must be verified on the filing date.

Can a sole proprietor use Subchapter V?

An eligible individual engaged in business may elect Subchapter V. Personal and business assets, exemptions, household income, guarantees, taxes, and discharge issues require an integrated analysis.

Can the owner keep the business?

Subchapter V removes some obstacles found in traditional Chapter 11, but ownership retention is not unconditional. The plan must satisfy the applicable consensual or nonconsensual confirmation rules and be feasible.

Does Subchapter V eliminate an SBA personal guaranty?

A company case does not automatically discharge a separate nonfiling guarantor. The guarantor needs an individual analysis.

Is a creditors’ committee required?

An unsecured creditors’ committee is generally not appointed in Subchapter V unless the court orders one for cause.

How quickly must the plan be filed?

Only the debtor may file a Subchapter V plan, and it is generally due within 90 days after the order for relief. Extensions are limited by statute.

Does the business have to pay U.S. Trustee quarterly fees?

The U.S. Trustee Program states that Subchapter V debtors do not pay U.S. Trustee quarterly fees. Other costs remain, including court fees, professional fees, trustee compensation as applicable, operating expenses, and plan payments.

Talk with a Nevada Subchapter V attorney

A useful first review should answer three questions: Is the debtor eligible? Can the business fund operations during the case? Can it propose a feasible plan within the accelerated schedule?

Bring current financial statements, a creditor and collateral list, SBA/EIDL documents, tax records, litigation notices, leases, and a realistic cash-flow forecast.

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Schedule a consultation or call (702) 805-1659.

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