Subchapter V

SBRA – commonly known as Subchapter V, referring to new Subchapter V of Chapter 11 of the Bankruptcy Code – may provide a much-needed lifeline to small businesses struggling to survive this crisis.

Advantages of Subchapter V

  1. There are no quarterly U.S. trustee fees.
  2. There’s no unsecured creditor committee—important because the debtor has to pay for committee counsel and that drives up the bankruptcy fees.
  3. No absolute priority rule—meaning equity holders can retain their equity in the company without infusing new capital.
  4. A plan can be confirmed without acceptance by creditors, so long as the debtor is contributing its maximum disposable income to the plan for 3-5 years and creditors are treated equitably in the plan.
  5. A plan will be consensual (all creditors agree to it) or nonconsensual. If a plan is consensual, the debtor receives its discharge upon confirmation. If the plan is nonconsensual, the debtor receives its discharge upon plan completion of plan payments.

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