Subchapter V Bankruptcy for a Business With MCA Debt
3 Points to Know Before Filing

Sales can stay strong while the structure beneath them fails. Subchapter V gives an eligible business a compressed path through Chapter 11, although the right to propose a plan is not the means to fund the case or perform its terms.

Eligibility Requires More Than a Small Business Label

A petition filed in the last quarter inherits the full year books, which is either a convenience or an exposure. The federal courts describe eligibility through commercial activity, a debt ceiling, and the share of debt arising from the business, with certain real estate enterprises excluded. The owner description of the company as small completes none of that analysis.

The courts explanation of Subchapter V sets the combined debt ceiling at a check date figure of $3,424,000, with at least half the debt arising from business activity. The limit, if we are being precise, is a moving figure under inflation adjustment rather than a permanent ceiling, and older articles citing superseded thresholds should be retired from the file. Counsel calculates eligibility from the obligations that count under the governing rules at the filing date, with disputed claims distinguished rather than omitted. The calendar is the real creditor in these cases, and missed deadlines prove extremely expensive in an accelerated case.

The identity of the debtor belongs in the same decision. A filing for the company differs from a filing for the individual behind a sole proprietorship, and the proposed case must match the assets, obligations, and activity that need relief. Steps the owner takes, or does not take, before filing will shape the schedules counsel can defend. I am less certain about borderline cases than the checklist format suggests, since characterization of MCA claims alone can move the totals.

The Plan, the Trustee, and the Disposable Income Commitment

Three to five years is the income commitment behind a plan confirmed without creditor acceptance. Only the debtor may file a plan in Subchapter V, with no separate disclosure statement unless the court orders otherwise for cause. The exclusivity is real, and the austere calendar behind it leaves little room for assembling history after filing.

A trustee serves in every Subchapter V case while the debtor remains in possession in the usual course, with duties touching the plan, major hearings, investigation of financial affairs, and oversight of payments. You stop the debits and then you meet the trustee.

And the trustee is not the owner adviser. Every schedule becomes testimony the trustee reads against the debtor. Trustees have seen every version of the optimistic projection. They keep a professional interest in the pessimistic one.

Under section 1191 on confirmation of a nonconsensual plan, the court may confirm where the statutory conditions hold, including nondiscrimination, fair and equitable treatment, and commitment of projected disposable income or equivalent value across the period. These are legal standards rather than an advertised settlement percentage. An MCA claimant asserted lien, collateral value, and transaction characterization need assessment before anyone assumes its treatment.

Beyond the first change in debits, the operating forecast must extend. Payroll, supplies, occupancy, taxes, and the professional costs of the case itself continue without pause. Prepare a forecast that separates ordinary expenses from prepetition obligations proposed for case treatment. Ensure counsel provides a case budget with the funding identified. That decides more than the stay does. Often we see a comparison with settlement that omits either side costs and distorts the decision. I have yet to see a plan confirmed on projections the trustee distrusted. The margin for interruption is thinner than most forecasts admit, in our experience.

The Stay, the Guaranty, and the Discharge

Filing triggers the automatic stay under section 362 on the automatic stay, and daily ACH debits collecting a prepetition claim fall within the acts the stay restrains. A funder may seek relief from the stay for cause, including lack of adequate protection, in order to resume collection. The stay carries statutory exceptions, though a full catalogue can wait for counsel. The petition sits on the docket the way a stone sits in a shoe, small beside the schedules and impossible to walk around.

An owner who signed a guaranty needs a separate answer. The company received protection. The guaranty survived. What the owner guaranteed, or believes it did not guarantee, needs its own review. No conversation with the funder about the case, even briefly, should precede advice on the stay.

Discharge follows confirmation and performance rather than arriving with the petition. Objections based on fraud can threaten the individual discharge in personal cases. Counsel reviews and explains which obligations may survive and what must occur before relief becomes effective, and the answer is extremely specific to the schedules filed.

Compare the Case With a Documented Settlement Option

Most owners reach this comparison exhausted. I understand the fatigue. Delancey Street is a settlement company, not a law firm, and it can discuss and assess a negotiated resolution while a bankruptcy attorney assesses eligibility and plan requirements.

Through the period any option needs, the business must keep performing. Ensure each alternative carries its costs and names the obligations left outside it. Counsel can price the settlement, test the plan assumptions, and set both paths beside the operating forecast. Simply bring the same forecast and the same schedule to both conversations. Resist the urge to file for the stay alone. The procedure earns its keep where a viable business needs a structure its obligations will not permit.