Chapter 11 Bankruptcy and Subchapter V in Miami

Chapter 11 is the reorganization chapter of the Bankruptcy Code. It is most often used by businesses that need to restructure debt, reject burdensome contracts and leases, and continue operating while negotiating with creditors. It is also available to individuals whose debts exceed the Chapter 13 limits, real estate investors with multiple properties, and small businesses that need more flexibility than Chapter 13 allows.

Since 2020, Subchapter V of Chapter 11 has provided a streamlined, less expensive reorganization process for small businesses with non-contingent debt up to approximately $7.5 million (subject to congressional reauthorization). Subchapter V has substantially expanded access to reorganization for South Florida small businesses.

When Chapter 11 (or Subchapter V) Is the Right Choice

Typical situations:

• A small business with trade debt, an SBA loan, and a commercial lease that has become unprofitable in its current form
• A real estate investor holding multiple investment properties facing foreclosure across several lenders
• A medical, dental, or other professional practice with operating losses and unsustainable debt
• A restaurant or retail operation with a long-term lease the landlord refuses to renegotiate
• An individual whose debts exceed the Chapter 13 statutory ceilings

Key Powers Available in Chapter 11

• Automatic stay. All collection activity, foreclosures, and litigation stop on the day of filing.
• Continued operation as debtor in possession. Management continues to operate the business, subject to oversight by the U.S. Trustee and any creditors' committee.
• Use of cash collateral. The debtor can use cash subject to a creditor's lien with court permission and adequate-protection arrangements.
• Rejection of executory contracts and unexpired leases. Burdensome leases and contracts can be rejected, with the resulting claim treated as general unsecured.
• Assumption and assignment of valuable contracts. Conversely, valuable contracts can be assumed and even sold to third parties.
• Restructuring of secured debt. Secured debt can be paid over an extended period at a reduced interest rate, and undersecured debt can be bifurcated into secured and unsecured components.
• Cramdown of dissenting classes. A plan can be confirmed over the objection of a class of creditors if the plan satisfies the absolute priority rule (in traditional Chapter 11) or the Subchapter V cramdown standard.

Why Subchapter V Changed Small-Business Bankruptcy

Before Subchapter V, traditional Chapter 11 was prohibitively expensive for most small businesses. Subchapter V eliminated or modified several of the costliest features of Chapter 11:

• No creditors' committee in most cases, eliminating committee professional fees
• No quarterly U.S. Trustee fees
• Subchapter V trustee assists with plan negotiation and oversight (typically less expensive than committee professionals)
• Only the debtor can file a plan, eliminating competing-plan disputes
• No absolute priority rule – the owner of a small business can keep equity even if unsecured creditors are not paid in full, as long as the plan commits all disposable income for three to five years
• Faster timeline – plan must be filed within 90 days of the petition

The Chapter 11 Timeline (Subchapter V)

• Day 0: Petition filed; automatic stay in effect
• Day 7-14: First-day motions on cash collateral, payroll, utilities, banking
• Day 21-50: Status conference, 341 meeting, debtor interview
• Day 90: Subchapter V plan due (extensions available for cause)
• Day 120-180: Confirmation hearing
• Years 1-3 (or 5): Plan payments to creditors
• End of plan: Discharge entered

Eligibility for Subchapter V

To qualify for Subchapter V, a debtor must:

• Be a person (individual, corporation, LLC, or partnership) engaged in commercial or business activities
• Have aggregate non-contingent, liquidated secured and unsecured debts below the statutory ceiling (currently approximately $7.5 million)
• Have at least 50% of the debts arising from business activities (single-asset real estate entities are excluded)

Schedule a Consultation

Chapter 11 and Subchapter V are complex proceedings that benefit from early planning. If you are running a small business considering reorganization, or if you are an individual whose debts exceed the Chapter 13 limits, call 786-522-1411 or email [email protected] for a confidential consultation.