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Unveiling the mystery of Subchapter 5 bankruptcy

On Behalf of | Aug 29, 2023 | Bankruptcy

Many small business owners in Georgia are struggling to stay financially afloat as both global and domestic economies continue to fluctuate. In recent years, many small businesses closed, and some have been unable to recover after re-opening their doors. Chapter 11 bankruptcy is most often associated with business. Subchapter 5 is a recently added section of the Chapter 11 U.S. bankruptcy code, which went into effect in 2020.

A lot of people say they have never even heard of Subchapter 5, which makes sense, since it has only been in effect for the past few years. If you are a small business owner who is considering filing for bankruptcy, you’ll want to learn as much as you can about it.

Bankruptcy for profitable businesses struggling to pay debts

If you own a profitable business in Georgia, it doesn’t necessarily mean you are able to pay your debts. It’s possible to generate a profit and still struggle to make payments for business loans and other debts on time. This is where Subchapter 5 of the Chapter 11 bankruptcy program comes into play.

This subchapter directly pertains to small business owners who are profiting but are still facing a financial crisis that is impeding their ability to satisfy their debts. If you file under this bankruptcy program, and the court approves your petition, your creditors must accept a court-approved repayment plan. Such plans typically last three to five years.

Subchapter 5 also helps you eliminate unsecured debts

If you have unsecured debt associated with your business, such as a credit card balance that has gotten out of control, you may be able to discharge these debts under Subchapter 5 of the Chapter 11 bankruptcy program. If you’re unsure what constitutes an “unsecured” debt, it is basically any debt you have that does not include collateral, such as a mortgage loan whereby a lender can take possession of a home or business if you default.

Subchapter 5 bankruptcy provides certain benefits

Not having to seek creditor approval of a repayment plan is undoubtedly one of the greatest benefits a Subchapter 5 bankruptcy provides. The following list includes several additional benefits:

  • A creditor cannot force you into Subchapter 5; only you can file on behalf of your business.
  • You need not file a disclosure when filing under this subchapter.
  • Under Subchapter 5, you may pay administrative expenses associated with the petition in installments, throughout the length of the plan.
  • You retain ownership of your business and can remain open throughout the process.

You must meet eligibility requirements before submitting a Subchapter 5 bankruptcy petition. Such requirements include not having debt that exceeds $2.5 million. It’s always best to carefully review such requirements to determine if a particular program fits your business’ needs.

Stay calm and explore your options when financial crisis hits

Never assume that all is lost when your small business in Georgia encounters financial problems. With options like Subchapter 5 bankruptcy available, you may be able to resolve debt and restore solvency in less time than you think.