Running a small business means carrying its debts personally in ways most owners feel every single day. When revenue dips and the loan payments, vendor invoices, and credit lines keep coming, the stress lands on your kitchen table, not just your balance sheet. For decades, the Bankruptcy Code offered small businesses little practical help, because the only reorganization tool available was a version of Chapter 11 built for large corporations.
That changed in February 2020, when the Small Business Reorganization Act created Subchapter V of Chapter 11. Subchapter V gives qualifying small businesses a faster, simpler, and far more affordable way to restructure debt while keeping the doors open and keeping ownership in your hands. This guide explains every major path available to a struggling Utah business, with a deep look at how Subchapter V actually works and who qualifies today.
The right bankruptcy path depends first on your business structure, because structure determines whose debt it really is.
If you operate as a sole proprietor, you and the business are legally the same person. Business debts are your debts, so your options are the personal bankruptcy chapters. A sole proprietor can eliminate qualifying debts through Chapter 7, reorganize through Chapter 13, or use Subchapter V, which is open to individuals engaged in business as well as companies.
If you operate as an LLC or corporation, the entity can file its own bankruptcy. But there is a critical wrinkle. Most small business lenders require owners to sign personal guarantees, which means the company’s bankruptcy does not erase your personal obligation on those debts. Owners are often sued personally by creditors on guarantees even after the business files, and resolving both sides sometimes takes a coordinated strategy involving a personal filing too. This is one of the most important conversations to have with an attorney before choosing any path.
Subchapter V eligibility comes down to three tests. You must be engaged in commercial or business activity. At least 50 percent of your debt must have come from that business activity. And your total noncontingent, liquidated secured and unsecured debt must fall under the current cap set by 11 U.S.C. Sections 1182 and 101(51D).
Sources: 11 U.S.C. Sections 1182, 101(51D), and 1189. Dollar amounts adjust every three years and Congress periodically changes them, so always verify the current limit before relying on it.
The debt limit has moved several times, which is why so much online information is outdated. Subchapter V launched in 2020 with a $2,725,625 cap. The CARES Act raised it to $7.5 million during the pandemic, that increase expired on June 21, 2024, the limit reverted to $3,024,725, and the regular inflation adjustment brought it to $3,424,000 for cases filed on or after April 1, 2025. Congress has since considered restoring the higher cap, so the number is worth re-checking whenever you evaluate eligibility.
The equity point deserves a plain English translation. In a traditional Chapter 11, the absolute priority rule generally says owners lose their stake unless creditors are paid in full or contribute new money. Subchapter V removes that rule for plans confirmed over creditor objections. A family business can restructure, pay what its income genuinely allows, and the family still owns the company at the end. For small business owners, that single change is often the difference between reorganizing and simply giving up.
The honest first question is not which chapter to file. It is whether the business is viable. A company with a real market and a temporary debt problem is a reorganization candidate. A company whose core model no longer works may be better served by an orderly wind down that protects the owner’s personal finances. Comparing your options side by side, the way our debt relief decision matrix does for consumers, is exactly the kind of analysis that should happen before anything gets filed.
The team at Blue Bee Bankruptcy Law represents Utah small business owners in everything from sole proprietor filings to Chapter 11 reorganizations, and our attorneys can tell you quickly whether Subchapter V fits your situation. Call (801) 285-0980 to schedule a consultation and get a clear-eyed assessment of your business, your guarantees, and your best path forward.
Subchapter V is a streamlined form of Chapter 11 reorganization created by the Small Business Reorganization Act, effective February 2020. It lets qualifying small businesses restructure debt through a 3 to 5 year plan funded by projected disposable income, with lower costs, faster deadlines, and rules that let owners keep their equity.
For cases filed between April 1, 2025 and March 31, 2028, the limit is $3,424,000 in total noncontingent, liquidated secured and unsecured debt. The figure adjusts for inflation every three years and Congress has changed it by legislation before, so verify the current amount before making decisions based on it.
A person or entity engaged in commercial or business activity whose total qualifying debt falls under the current limit, where at least 50 percent of that debt arose from business activity. Corporations, LLCs, partnerships, and individuals operating businesses can all qualify. Certain debtors, such as single asset real estate entities, are excluded.
No. Reorganization chapters exist precisely so viable businesses can keep operating. In Subchapter V you remain the debtor in possession, running day to day operations while the case proceeds. Closure is generally associated with Chapter 7 liquidation, which is designed for businesses that will not continue.
Yes, and this is one of Subchapter V’s biggest advantages. The absolute priority rule that normally forces owners out unless creditors are paid in full does not apply to Subchapter V plans confirmed over creditor objections. Owners can retain their equity while the plan pays creditors from the business’s projected disposable income.
Plans run 3 to 5 years. The business commits its projected disposable income, meaning what remains after reasonable operating expenses, to plan payments during that period. When the plan is complete, remaining qualifying unsecured debts are discharged.
Subchapter V removes the unsecured creditors committee in most cases, eliminates the disclosure statement in the ordinary case, gives the debtor the exclusive right to file a plan, imposes a 90 day plan deadline, removes quarterly United States Trustee fees, and lets owners keep equity without satisfying the absolute priority rule. The result is a faster and significantly less expensive reorganization.
Yes. Individuals engaged in commercial or business activity can file under Subchapter V if they meet the debt tests. Sole proprietors can also consider Chapter 13, which for current cases requires unsecured debt under $526,700 and secured debt under $1,580,125, or Chapter 7 if the business is winding down.
The business’s bankruptcy does not erase your personal liability on a guarantee. Creditors can still pursue you individually, which is why owners with significant guarantees often need a coordinated strategy that may include a personal filing. Reviewing every guarantee should be part of any business bankruptcy consultation.
The Subchapter V trustee is a facilitator, not a liquidator. The trustee reviews the business’s finances, participates in the status conference, and works to help the debtor and creditors reach a consensual plan. The business owner keeps operating the company throughout the case.
