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Chapter 5 Bankruptcy: Answers To Common Questions

Chapter 11 bankruptcy, which allows business reorganization, is most beneficial to large corporations. The Small Business Reorganization Act of 2019 (SBRA) was a significant reform of the bankruptcy code, applicable only to small businesses, and created another business option.

SBRA added Subchapter 5 to Chapter 11. It is a faster, streamlined process for small businesses. Read answers to frequently asked questions about Subchapter 5 bankruptcy below to learn more. Contact Schwartz Law Firm with any additional questions.

Who qualifies for Chapter 5 bankruptcy?

Chapter 5 bankruptcy is available to people or businesses that engage in commercial or business deals that meet debt limits.

What are the debt limits to file Chapter 5 bankruptcy?

Your business must not have aggregate, noncontingent debt of more than $2,725,625 million. That excludes debts you owe affiliates and insiders. Section 113 of the recent CARES Act temporarily increased the debt limit from $2,725,625 to $7.5 million in debts. The debt increase only applies to bankruptcy cases that were filed after the CARES ACT went into effect. Unless Congress extends the deadline, debt limits will decrease back to $2,725,625 after one year from when the CARES Act became effective.

What is the difference between Chapter 11 and Chapter 5?

There are several key differences between Chapter 11 and Chapter 5 bankruptcy, including:

  • A standing trustee is appointed – there is no requirement to pay U.S. Trustee (UST) quarterly fees.
  • There is no appointed committee of unsecured creditors.
  • The business is not required to submit a disclosure statement with their reorganization plan.

Eliminating the creditors’ committee and the quarterly UST fee helps smaller businesses save fees and time.

How long does it take to file Chapter 5 bankruptcy?

The bankruptcy court will schedule a substantive status conference within 60 days of filing for Chapter 5 bankruptcy. The business must submit their plan for reorganization to the court within 90 days.

How do I know whether I should file Subchapter 5 or Chapter 11 bankruptcy?

To file under Subchapter 5, the business owner is required to submit several documents, including their:

  • Most recent balance sheet
  • Statement of operations
  • Cash flow statement
  • Federal income tax returns

If you do not have a federal income tax return, you can file a sworn statement explaining that it does not exist.

Manage Your Subchapter 5 Bankruptcy Filing

If you are a small-business owner in Michigan, our lawyers can guide you through the process. Email us or call 888-757-1681 to learn whether you could benefit from filing for bankruptcy.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.