Subchapter V for Sole Proprietors: Eligibility Pitfalls, Cramdown Strategy, and Keeping Control of the Business
Subchapter V is a simplified version of Chapter 11 bankruptcy designed to help small business owners reorganize without losing control of their operations. It’s faster, cheaper, and gives owners more say in how debts are repaid.
Sole proprietors in Southaven, Memphis, or any city across the USA may find Subchapter V as a beneficial path in navigating their bankruptcy process. However, a sole proprietor must ensure it is done properly and with all considerations considered.
Eligibility Pitfalls That Can Derail Your Case
Subchapter V isn’t available to everyone. As of April 2025, your total non-contingent debt must be under $3.42 million, and at least half of that must come from business activity. If most of your debt is personal or if your business is focused on one rental property, you may not qualify.
Another issue is that you must be “engaged in commercial activity” at the time you file. That can include winding down or collecting receivables, but it’s something courts look at closely.
How Cramdown Plans Keep the Business Alive
Even if creditors reject your plan, you may still get it confirmed through a cramdown. To do this, you must commit all your projected disposable income over three to five years.
You also need to show that the plan is feasible and includes remedies if you fall behind, like allowing a creditor to take the asset back. However, unlike traditional Chapter 11, you don’t have to pay creditors in full before keeping your business.
How to Keep Control Throughout the Process
Subchapter V lets business owners stay in charge. There’s no creditors’ committee unless the court orders one, and there are no U.S. Trustee fees. If you meet deadlines and remain in good faith, you retain full decision-making power. This control is often what makes Subchapter V attractive for sole proprietors looking to stay afloat.
Talk to Us About Your Business Reorganization
At O’Brien Law Firm, LLC, we help sole proprietors across DeSoto County and Memphis use Subchapter V to save their businesses and reset their finances. Call 662-672-7619 or complete our intake form to schedule a confidential consultation.
