Reorganization Tools for Miami Businesses

A Miami business that cannot pay its debts as they come due has two broad paths. It can sell its assets and close, or it can restructure what it owes and keep operating. This page covers the second path. It explains the four reorganization tools available to a Miami company, the statutes that govern each one, the deadlines that start running the day a petition is filed, and what a case looks like in practice for two common types of Miami businesses. If your company is closer to the first path, our page on liquidation tools for Miami businesses covers Chapter 7, assignments for the benefit of creditors under Fla. Stat. ch. 727, and receiverships.

Who Should Be Reading This

Reorganization makes sense for a business that earns money from operations but carries debt it cannot service on its current terms. The typical Miami client is a restaurant with a lease it can afford and an SBA loan it cannot, a contractor with a sales tax balance owed to the Florida Department of Revenue, a medical practice with equipment leases signed during an expansion that never produced the expected volume, or a family-owned importer whose line of credit was called after one bad quarter. In each of these cases the business has customers, employees, and a location worth keeping. The problem is the balance sheet, not the operation.

Reorganization does not make sense for a business with no operating profit before debt service. A plan has to be funded from somewhere. If the numbers do not work before the creditors are paid, the bankruptcy court will not confirm a plan, and the case will convert to Chapter 7 or be dismissed. We tell clients this in the first meeting because a failed Chapter 11 costs more than a well-planned closing.

The Four Reorganization Tools

1. Out-of-Court Workout

A workout is a negotiated agreement with one or more creditors to modify payment terms without a court filing. It works when the business has a small number of large creditors, those creditors are rational, and the business can show them a credible forecast. A Miami landlord holding a personal guaranty may accept a rent deferral rather than a vacant storefront. An equipment lender may re-amortize a note rather than repossess a used commercial oven it would have to sell at auction.

The weakness of a workout is that it binds only the creditors who sign it. Any creditor who refuses can sue, obtain a judgment, and garnish the operating account under Fla. Stat. ch. 77. A workout also offers no protection against a landlord exercising the possession remedies in Fla. Stat. § 83.05 or asserting the statutory landlord's lien on property on the premises under Fla. Stat. § 83.08. For these reasons, we often negotiate a workout with the Chapter 11 petition drafted and ready to file. Creditors negotiate differently when they know the alternative is the automatic stay.

2. Traditional Chapter 11

Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101 through 1174, lets a business remain in control of its own assets as a debtor in possession under § 1107 while it proposes a plan to restructure its debts. Any business entity may file. There is no debt limit. The case is heard in the Miami Division of the United States Bankruptcy Court for the Southern District of Florida at 301 North Miami Avenue.

A traditional Chapter 11 has three features that make it expensive and slow for a smaller company. First, the United States Trustee may appoint an official committee of unsecured creditors under § 1102, and the debtor pays the committee's lawyers. Second, the debtor must prepare and obtain court approval of a disclosure statement under § 1125 before it may solicit votes on a plan. Third, to confirm a plan over the objection of a class of unsecured creditors, the debtor must satisfy the absolute priority rule in § 1129(b)(2)(B)(ii), which prohibits equity owners from keeping their ownership unless unsecured creditors are paid in full or the owners contribute new value. For a Miami company owned by the people who run it, that last rule is often the reason a traditional Chapter 11 fails.

Traditional Chapter 11 remains the right tool for a larger business with debt above the Subchapter V limit, for a business that needs to sell substantially all of its assets free and clear of liens under § 363(f) as a going concern, or for a business with complex capital structures where a committee is unavoidable anyway.

3. Subchapter V of Chapter 11

Subchapter V, codified at 11 U.S.C. §§ 1181 through 1195, is the tool most Miami small businesses use today. It is available to a debtor engaged in commercial or business activity with aggregate noncontingent, liquidated secured and unsecured debt of $3,424,000 or less, not less than half of which arose from the business. The figure is set in § 1182(1)(A) as adjusted effective April 1, 2025, and it adjusts every three years under § 104. A debtor elects Subchapter V by checking a box on the petition.

The differences from a traditional Chapter 11 matter in practice:

• No creditors' committee: Under § 1181(b), no committee is appointed unless the court orders one for cause.
• No disclosure statement: Section 1181(b) also removes the § 1125 requirement unless the court orders otherwise. The plan itself must contain a brief history of the business, a liquidation analysis, and projections showing the debtor's ability to make plan payments. See § 1190(1).
• Only the debtor may file a plan: Section 1189(a) gives the debtor exclusive plan rights for the life of the case. Creditors cannot file a competing plan.
• No absolute priority rule: Under § 1191(b) and (c), the court may confirm a plan over the objection of every impaired class so long as the plan does not discriminate unfairly and commits the debtor's projected disposable income for three to five years to plan payments. The owners keep the company.
• No quarterly U.S. Trustee fees: Subchapter V debtors are exempt from the quarterly fees in 28 U.S.C. § 1930(a)(6) that traditional Chapter 11 debtors pay based on disbursements.
• A Subchapter V trustee: Section 1183 requires appointment of a standing trustee who does not run the business but facilitates a consensual plan and, in a nonconsensual case, receives and distributes plan payments. The trustee's fee is paid from the estate.
• Modification of a home mortgage: Section 1190(3) permits modification of a mortgage on the owner's principal residence if the loan proceeds were used primarily in the business. That is the only chapter in the Code with this feature.

The trade-off is speed. Subchapter V compresses the case into a short calendar, discussed below, and a debtor who is not prepared on the petition date will struggle to meet it.

4. Chapter 13 for Sole Proprietors

A Miami business owner who operates without a corporation or LLC is personally liable for every business debt. That owner may file Chapter 13 under 11 U.S.C. §§ 1301 through 1330 if he or she has regular income and owes, on the petition date, less than $526,700 in noncontingent, liquidated unsecured debt and less than $1,580,125 in noncontingent, liquidated secured debt. Those are the § 109(e) limits as adjusted April 1, 2025. Business debts and personal debts are counted together.

Section 1304 authorizes a self-employed Chapter 13 debtor to continue operating the business. The plan must run three to five years under § 1322(d), and the debtor must commit all projected disposable income to unsecured creditors under § 1325(b). Disposable income is calculated from the debtor's current monthly income, a defined term explained on our Miami current monthly income page. Chapter 13 is cheaper than Subchapter V, the filing fee is $313 compared with $1,738, and the standing Chapter 13 trustee handles disbursements. The limits are the constraint. A contractor with a $400,000 sales tax assessment, $200,000 in supplier accounts, and a $900,000 mortgage will be over the unsecured cap and must use Subchapter V instead.

What the Automatic Stay Stops on the Petition Date

Filing any of the three bankruptcy chapters triggers the automatic stay of 11 U.S.C. § 362(a). From the moment the petition is docketed, creditors may not continue lawsuits, levy on bank accounts, repossess equipment, or lock a tenant out of leased premises. A landlord who changes the locks after the filing violates the stay and may be liable for damages under § 362(k) if the debtor is an individual, or for civil contempt if the debtor is an entity. Utility providers may not disconnect service for prepetition arrears, though under § 366(c) the debtor must offer adequate assurance of future payment, usually a deposit, within 20 days or service may be terminated on day 30.

The stay has limits a Miami business should know before filing. Under § 362(b)(10), the stay does not apply to a landlord's action to obtain possession of nonresidential real property if the lease terminated by its own terms before the petition. If a landlord has already obtained a final judgment for possession in county court under Fla. Stat. § 83.21, filing may be too late to save the location. The stay also does not stop the Florida Department of Revenue from issuing a tax assessment or demanding a return, though it does stop collection. And the stay does not protect a guarantor. If the owner personally guaranteed the SBA loan, the lender may pursue the owner unless the owner also files or the court extends the stay under § 105.

Deadlines That Begin Running on the Petition Date

The calendar below applies to a Subchapter V case in the Miami Division. Traditional Chapter 11 and Chapter 13 differences are noted.

The § 365(d)(4) deadline deserves attention in Miami, where retail and restaurant rents are high and a below-market lease may be the business's most valuable asset. To assume a lease under § 365(b)(1), the debtor must cure all prepetition rent defaults, or provide adequate assurance of a prompt cure, and demonstrate adequate assurance of future performance. If the business misses day 120 without assuming, the lease is deemed rejected and the debtor must surrender the premises. We calendar this date before the petition is filed and begin lease negotiations in week one.

Running the Business Inside the Case

Cash Collateral

Most Miami business lenders hold a blanket lien on accounts receivable, inventory, and deposit accounts under a UCC-1 filed with the Florida Secured Transaction Registry pursuant to Fla. Stat. ch. 679. The cash those assets generate is cash collateral under 11 U.S.C. § 363(a). The debtor may not spend one dollar of it after filing without the lender's consent or a court order under § 363(c)(2). A business that files on a Friday and makes payroll on Monday from a collateralized account without an order has violated the Code.

We file a motion for authority to use cash collateral with the petition and request an emergency hearing, typically within two or three business days. Local Rule 4001-2 requires the motion to identify specific provisions, such as liens on avoidance actions or cross-collateralization, that the court will scrutinize. The lender receives adequate protection under § 361, usually in the form of a replacement lien on postpetition receivables and a monthly payment approximating interest. The order is accompanied by a budget, and the debtor reports actual results against it.

Postpetition Financing

A business that needs new money during the case may borrow under § 364. Unsecured credit in the ordinary course is permitted without an order under § 364(a). Anything beyond that requires court approval, and a lender willing to extend credit may receive an administrative priority under § 364(c)(1) or a lien on unencumbered property under § 364(c)(2). In smaller Miami cases the postpetition lender is often the owner, contributing personal funds under an approved order so that the contribution is documented and repaid ahead of unsecured claims.

Priority Tax Claims

Sales tax collected from customers under Fla. Stat. ch. 212 and not remitted, and payroll withholding not deposited with the IRS, are priority claims under § 507(a)(8). A confirmed plan must pay them in full, with interest, within five years of the petition date under § 1129(a)(9)(C) and § 1191(e). The reorganization does not discharge the owner's personal exposure. Under Fla. Stat. § 213.29, a person with administrative control who willfully fails to remit sales tax is personally liable for a penalty equal to twice the tax. The IRS trust fund recovery penalty under 26 U.S.C. § 6672 operates the same way. A plan that pays these taxes in full over five years is often the only practical way an owner avoids a personal assessment.

Worked Example: A Little Havana Restaurant in Subchapter V

A restaurant operating for nine years on a leased corner in Little Havana grosses $1.6 million a year and produces about $140,000 a year in cash flow before debt service. It owes $610,000 on an SBA 7(a) loan secured by all assets and guaranteed by the two owners, $95,000 to the Florida Department of Revenue in unremitted sales tax, $180,000 in supplier accounts, and $48,000 in back rent. Total debt of $933,000 is well under the $3,424,000 Subchapter V cap. The landlord has served a three-day notice under Fla. Stat. § 83.20 but has not filed suit.

The restaurant files a Subchapter V petition on a Monday with a cash collateral motion, a utilities motion, and the Case Management Summary. Payroll is protected by an interim order entered Wednesday. Within the first 30 days, counsel negotiates an assumption of the lease under § 365(b) with the $48,000 cure paid over 12 months and the landlord's agreement not to object to confirmation. The pre-status-conference report is filed on day 46. At the day 60 status conference the court sets a confirmation hearing for day 120.

The plan filed on day 88 proposes: the SBA loan re-amortized over 20 years at the contract rate with the lien retained, satisfying § 1191(c)(1) through § 1129(b)(2)(A); the $95,000 sales tax claim paid in full over 60 months at the statutory rate under § 1191(e); and unsecured suppliers paid 22 cents on the dollar from projected disposable income over five years, which the liquidation analysis shows exceeds what an auction of used kitchen equipment would produce. The suppliers' class rejects. The court confirms under § 1191(b) because the plan commits all projected disposable income for five years and the owners' retention of equity is permitted. Under § 1192, the owners receive a discharge of the guaranteed SBA balance that is not paid through the plan only if they file their own cases; the entity's discharge does not extend to them. In this example the owners file joint Chapter 13 the same week, and the entity plan payments satisfy the lender so the guaranty claim in the individual case is paid nothing.

Worked Example: A Sole-Proprietor Contractor in Chapter 13

A licensed general contractor doing residential remodels in Coconut Grove operates as a sole proprietor. She owes $310,000 in unsecured debt: $140,000 to lumber and tile suppliers, $60,000 on business credit cards, $85,000 in Florida sales tax on materials, and $25,000 to a subcontractor who has recorded a construction lien under Fla. Stat. ch. 713 against a customer's property, generating a customer lawsuit. Her secured debt is a $410,000 mortgage on her homestead and a $38,000 truck loan. Both figures are under the § 109(e) limits of $526,700 and $1,580,125.

She files Chapter 13 and continues working under § 1304. The plan, filed with the petition under Rule 3015(b), runs 60 months. Her current monthly income exceeds the applicable median for her household size, so the 60-month term is mandatory under § 1325(b)(4). The plan pays the $85,000 sales tax claim in full under § 1322(a)(2), cures a $9,000 mortgage arrearage over the plan term under § 1322(b)(5), pays the truck in full at a reduced interest rate, and distributes the balance of her disposable income to unsecured creditors, who receive roughly 15 percent. The subcontractor's lien is against the customer's property, not hers, so it survives the plan; the customer's claim against her for the lien is unsecured and discharged. Because her homestead is protected under Fla. Const. art. X, § 4 and Fla. Stat. § 222.01, the trustee has no interest in the home beyond the arrearage cure. She receives a discharge under § 1328(a) at month 60.

When Reorganization Is the Wrong Tool

We advise a closing rather than a reorganization when operations lose money before debt service, when the owners are no longer willing to run the business, when the principal asset is a lease the landlord will not permit to be assumed, or when a competitor will pay more for the customer list and equipment than the business could earn over a five-year plan. In those situations an assignment for the benefit of creditors under Fla. Stat. ch. 727 or a Chapter 7 filing is faster and cheaper. The owner's personal exposure on guaranties is then addressed separately, and our page on Chapter 7 bankruptcy qualifications in Miami explains the means test as it applies to an individual whose debts are primarily business debts, a category exempt from the § 707(b) presumption of abuse.

What to Bring to the First Meeting

• Financial statements: Profit and loss statements and balance sheets for the past 24 months, and year-to-date.
• Loan documents: Every note, security agreement, guaranty, and UCC-1 search from the Florida Secured Transaction Registry.
• Leases: Real property and equipment leases, with all amendments and any default notices.
• Tax accounts: Florida Department of Revenue sales tax account status, IRS payroll account transcripts, and Miami-Dade County tangible personal property tax bills.
• Litigation: Every summons, complaint, judgment, and garnishment received in the past two years.
• A 13-week cash forecast: If you do not have one, we will help you build it. The court will require one for the cash collateral motion.

You can contact the Law Offices of Albert Goodwin by phone at 786-522-1411 or by email at [email protected].