Restructure and Protect Your Business with Subchapter V

1.  Filing Requirements and Early Duties
Automatic Stay: Filing your Subchapter V petition immediately stops creditor actions, including collections, lawsuits, foreclosures, tax liens, and other enforcement efforts.

First-Day Motions:
Debtors must quickly file necessary first-day motions, such as:

• Requests to use cash collateral,
• Motions to provide “adequate protection” payments to secured creditors through the Subchapter V trustee, and
• Applications to employ professionals (such as attorneys or accountants).

Financial Disclosures and Compliance Duties:
On the filing date, debtors are required to submit:

• The most recent financial reports under Section 1116(1),
• Periodic operating reports under Section 308,
• Complete schedules of assets and liabilities, and
• Statements of financial affairs.

Debtors must also:

• Maintain proper insurance coverage,
• Pay all taxes that come due during the case, and
• Open debtor-in-possession (DIP) bank accounts to handle post-petition transactions.

2.  Trustee Appointment:
A Subchapter V trustee is appointed early in the case to help facilitate negotiations toward a fair and consensual repayment plan, oversee adequate protection payments, and monitor the debtor’s compliance with bankruptcy requirements. If a consensual plan is confirmed, the trustee’s role typically ends upon substantial consummation of the plan. However, if the plan is nonconsensual, the trustee often remains involved as the disbursing agent for plan payments, which can increase trustee fees unless the plan specifies otherwise.

3.  Status Conference & Reporting:
Subchapter V sets three key deadlines:

• The debtor must file a status report detailing efforts to reach a consensual plan no later than 14 days before the initial status conference.
• The Bankruptcy Court must hold the initial status conference within 60 days of the petition date to review the status report, discuss the goals of the bankruptcy filing, and chart a path forward for the case.
• The debtor must work with the trustee and creditors during this early phase to keep the case moving quickly toward a confirmable plan.

4.  Develop Your Plan:
Work closely with your attorney and the Subchapter V trustee, who helps facilitate negotiations with creditors, to develop a feasible reorganization plan that restructures debts while allowing business operations to continue.

5.  Plan Submission:
In Subchapter V, only the debtor can file a reorganization plan, which must be filed within 90 days of the petition date and may be amended at any time before confirmation. The plan can be consensual, if creditors agree, or nonconsensual if necessary. Even without creditor approval, a plan can still be confirmed if it meets certain fairness standards.

Key points about plan submission under Subchapter V:

• Fair and Equitable Standard: If creditors do not consent, the debtor must show that the plan pays creditors at least the value of the business’s projected disposable income over three to five years.
• Disposable Income Defined: Reasonable business expenses, including the owner’s salary and contingency reserves, are deducted before calculating payments.
• Flexible Payment Structures: Plans can provide for installment payments or a lump-sum payment funded by exit financing or other sources, helping speed up the reorganization.

6.  Confirmation Hearing:
After filing the plan, the debtor attends a court hearing where the proposed repayment plan is reviewed and considered for approval. There is no strict deadline for the court to confirm the plan, but it must be proposed in good faith and satisfy Subchapter V requirements. Only the debtor may file a plan in Subchapter V, meaning creditors cannot propose competing plans or terminate the debtor’s exclusive right to reorganize. The court may confirm the plan as proposed or require modifications based on feedback from creditors, the Subchapter V trustee, or the judge.

Subchapter V plans must include important information upfront because no separate disclosure statement is required. This ensures creditors and the court have enough detail to evaluate the plan at the confirmation hearing.

Key elements required in a Subchapter V plan:

• Debtor’s Business History: A short narrative describing the debtor’s background and operations.
• Plan Purpose and Mechanics: An explanation of the goals of the plan and how it will work.
• Liquidation Analysis: A comparison showing what creditors would receive if the debtor were liquidated instead of reorganized.
• Financial Projections: Detailed forecasts demonstrating how the debtor will make plan payments.
• Contingency (“Fallback”) Provisions: Terms specifying what will happen if the debtor defaults, including possible liquidation or asset sales without needing further court approval.
• Flexibility in Exit Strategies: Plans can allow for liquidation, going-concern sales, or specific sale procedures (e.g., stalking horse bids, auction terms) if needed after a default.

7.  Make Plan Payments:
Follow the terms of the approved plan by making scheduled payments to restructure and satisfy business debts successfully.

8.  Debt Discharge & New Start:
Upon successful completion of your repayment plan, you will receive a discharge of remaining eligible debts, allowing your business to move forward on solid financial footing.