In February 2020, the Small Business Reorganization Act (“SBRA”) went into effect, bringing some dramatic changes to the Chapter 11 bankruptcy process for small businesses. The law is codified at subchapter V of Chapter 11 of the Bankruptcy Code and the small business cases are sometimes called subchapter V cases. The purpose of the legislation was to remove some of the impediments in the Bankruptcy Code that prevented smaller businesses from being able to successfully confirm plans of reorganization and to make the process faster and more efficient for smaller bankruptcy cases.


To qualify for this type of bankruptcy filing your small business must have total debts (secured and unsecured) less than $2.75 million. However, under the recently passed CARES Act the debt limit was increased to less than $7.5 million. The principal business activity cannot be a single asset real estate operation. If this criteria is not met, then the business must proceed under the regular Chapter 11 bankruptcy rules.

Filing Requirements

The small business will need to file a bankruptcy petition, a balance sheet, statement of operations, cash flow statements and federal tax returns.

Trustee Appointment

The Bankruptcy Court will appoint a trustee, but his or her powers are more like that of a Chapter 12 Trustee (fisherman or farmer bankruptcy cases). The Small Business Trustee does not take possession of the small business assets and lacks the ability to sell those assets. Instead, the Trustee is more like an advisor and handler – facilitating the development of a consensual reorganization plan, appearing at major hearings and ensuring that the small business makes timely payments under the plan of reorganization. The small business must pay the small business trustee.

The Process

Unlike a typical Chapter 11 bankruptcy, the small business bankruptcy moves very fast. The Bankruptcy Court will hold a status conference within 60 days from the filing date. At least 14 days before the status conference, the small business must report in writing on the efforts made, and to be made, to get a consensual plan. The small business must then file its plan or reorganization within 90 days from the filing. Unlike a typical Chapter 11 bankruptcy, only the small business can file a plan.

Also unlike a typical Chapter 11 bankruptcy, the small business will not have to file a disclosure statement. This regular Chapter 11 requirement is designed to provide creditors with sufficient information to analyze and vote for or against the plan. In practice, the disclosure statement leads to protracted disputes and delays as the parties argue over the adequacy of the disclosures. Instead, the small business includes the bankruptcy plan a brief history of business operations, a liquidation analysis, and projections demonstrating the ability of the small business to make the proposed plan payments. There is usually no appointment of a creditors’ committee which reduces both time and expenses.

Plan Confirmation

The small business can confirm the plan even without acceptance by creditors. However, the plan must not discriminate unfairly and must be fair and equitable. Creditors must still receive as much under the plan as they would if the small business liquidated in a Chapter 7 bankruptcy. The provisions of the bankruptcy code also provides an option for the small business to contribute all “projected disposable income” to making plan payments for three to five years – much like a Chapter 13 bankruptcy plan. Projected disposable income is everything after expenses to maintain and support the small business and expenditures necessary for business operations. Finally, the Bankruptcy Court must find that: 1) the small business will be able to make all payments under the plan; or 2) there is a reasonable likelihood that the small business will be able to make all payments under the plan and the plan contains appropriate remedies to protect creditors if payments are not made as proposed.


With a consensual plan, the small business will receive a discharge at confirmation. Without a consensual plan, the small business will receive a discharge if it completes all plan payments.

Take Action

You worked hard for your business. As the country reels from the staggering economic effects of COVID-19, there are options available. Subsection V makes a business bankruptcy simpler, faster, and less expensive for small businesses. We strive to provide our clients with the tools and expertise needed to navigate this tumultuous time and are committed to helping our clients weather the reorganization process.