Chapter 11 Bankruptcy and Subchapter V in Miami

Chapter 11 is the reorganization chapter of the Bankruptcy Code. It is most often used by businesses that need to restructure debt, reject burdensome contracts and leases, and continue operating while negotiating with creditors. It is also available to individuals whose debts exceed the Chapter 13 limits, real estate investors with multiple properties, and small businesses that need more flexibility than Chapter 13 allows.

Since 2020, Subchapter V of Chapter 11 has provided a streamlined, less expensive reorganization process for small businesses with non-contingent debt up to approximately $7.5 million (subject to congressional reauthorization). Subchapter V has substantially expanded access to reorganization for South Florida small businesses.

When Chapter 11 (or Subchapter V) Is the Right Choice

Typical situations:

• A small business with trade debt, an SBA loan, and a commercial lease that has become unprofitable in its current form
• A real estate investor holding multiple investment properties facing foreclosure across several lenders
• A medical, dental, or other professional practice with operating losses and unsustainable debt
• A restaurant or retail operation with a long-term lease the landlord refuses to renegotiate
• An individual whose debts exceed the Chapter 13 statutory ceilings

Key Powers Available in Chapter 11

• Automatic stay. All collection activity, foreclosures, and litigation stop on the day of filing.
• Continued operation as debtor in possession. Management continues to operate the business, subject to oversight by the U.S. Trustee and any creditors' committee.
• Use of cash collateral. The debtor can use cash subject to a creditor's lien with court permission and adequate-protection arrangements.
• Rejection of executory contracts and unexpired leases. Burdensome leases and contracts can be rejected, with the resulting claim treated as general unsecured.
• Assumption and assignment of valuable contracts. Conversely, valuable contracts can be assumed and even sold to third parties.
• Restructuring of secured debt. Secured debt can be paid over an extended period at a reduced interest rate, and undersecured debt can be bifurcated into secured and unsecured components.
• Cramdown of dissenting classes. A plan can be confirmed over the objection of a class of creditors if the plan satisfies the absolute priority rule (in traditional Chapter 11) or the Subchapter V cramdown standard.

Why Subchapter V Changed Small-Business Bankruptcy

Before Subchapter V, traditional Chapter 11 was prohibitively expensive for most small businesses. Subchapter V eliminated or modified several of the costliest features of Chapter 11:

• No creditors' committee in most cases, eliminating committee professional fees
• No quarterly U.S. Trustee fees
• Subchapter V trustee assists with plan negotiation and oversight (typically less expensive than committee professionals)
• Only the debtor can file a plan, eliminating competing-plan disputes
• No absolute priority rule – the owner of a small business can keep equity even if unsecured creditors are not paid in full, as long as the plan commits all disposable income for three to five years
• Faster timeline – plan must be filed within 90 days of the petition

The Chapter 11 Timeline (Subchapter V)

• Day 0: Petition filed; automatic stay in effect
• Day 7-14: First-day motions on cash collateral, payroll, utilities, banking
• Day 21-50: Status conference, 341 meeting, debtor interview
• Day 90: Subchapter V plan due (extensions available for cause)
• Day 120-180: Confirmation hearing
• Years 1-3 (or 5): Plan payments to creditors
• End of plan: Discharge entered

Eligibility for Subchapter V

To qualify for Subchapter V, a debtor must:

• Be a person (individual, corporation, LLC, or partnership) engaged in commercial or business activities
• Have aggregate non-contingent, liquidated secured and unsecured debts below the statutory ceiling (currently approximately $7.5 million)
• Have at least 50% of the debts arising from business activities (single-asset real estate entities are excluded)

Debtor in Possession: What the Status Actually Means

In nearly every Chapter 11 case, the existing management continues to operate the business as "debtor in possession" (DIP) under 11 U.S.C. §§ 1107 and 1108. The DIP has substantially the same powers and duties as a Chapter 7 trustee but without an outside trustee in place. Day-to-day operations continue, but the DIP must:

• Open new debtor-in-possession bank accounts – pre-petition accounts are closed and replaced under the approved depository requirements of the U.S. Trustee
• File monthly operating reports detailing receipts, disbursements, payroll, taxes, and insurance
• Obtain court approval before incurring any debt outside the ordinary course of business
• Obtain court approval before selling assets outside the ordinary course (typically through a Section 363 sale)
• Maintain insurance and remain current on all post-petition obligations, including taxes
• Comply with U.S. Trustee operating guidelines and attend the initial debtor interview

Failure to comply with DIP obligations is the single most common reason cases are dismissed or converted to Chapter 7. The first 30 days of a Chapter 11 are administratively intense, and the discipline of operating under bankruptcy court supervision is a real change for most owners.

The Subchapter V Debt Limit and Recent Fluctuation

The Subchapter V debt ceiling has been a moving target. When Subchapter V took effect in February 2020, the limit was $2,725,625. The CARES Act and subsequent legislation temporarily increased the limit to $7.5 million; that increase has been extended several times and has lapsed and been reinstated. The aggregate debt limit affects whether the small-business reorganization tools are available. Because the cap has fluctuated and is subject to ongoing congressional action, the threshold question – "am I eligible for Subchapter V?" – should be confirmed at the time of filing rather than relied on from older guidance. Our office checks current eligibility at every intake.

If a debtor sits just over the Subchapter V threshold, a careful pre-filing review sometimes identifies non-includable debts (contingent or unliquidated obligations, insider debts, and certain affiliate debts) that bring the case under the limit. Conversely, if a debtor is well over the threshold, traditional Chapter 11 remains available with its full toolkit (creditors' committees, exclusivity periods, competing plans, and the absolute priority rule).

Plan Confirmation Standards

Confirmation of a Chapter 11 plan requires the court to find that the plan satisfies the requirements of 11 U.S.C. § 1129. The recurring confirmation issues are:

Best-Interests Test

Each non-accepting unsecured creditor must receive at least as much under the plan as it would in a Chapter 7 liquidation. The hypothetical liquidation analysis is included with the disclosure statement (in traditional Chapter 11) or the plan (in Subchapter V).

Feasibility

The court must find that confirmation is not likely to be followed by liquidation or further reorganization. Projected cash flows must realistically support the plan payments. Many plans fail at confirmation because the projections are too aggressive.

Good Faith

The plan must be proposed in good faith and not by any means forbidden by law. Plans that exist primarily to defeat a single creditor with no real reorganization purpose may fail this test.

Absolute Priority Rule (Traditional Chapter 11)

If a class of unsecured creditors votes to reject the plan, the absolute priority rule of § 1129(b)(2)(B) requires either that the rejecting class be paid in full or that no junior class – including the existing equity holders – retain any property under the plan. This rule was historically the biggest obstacle to small-business reorganization, because it prevented the owner from retaining equity over a dissenting unsecured class without a "new value" contribution.

Subchapter V's Cramdown Standard

Subchapter V replaces the absolute priority rule with a "disposable income" standard. The debtor must commit all projected disposable income for three to five years (as the court determines), and the plan must be fair and equitable as to each impaired non-accepting class. The owner can keep equity even if unsecured creditors are not paid in full – the central reason Subchapter V was enacted. See our overview of business bankruptcy for a side-by-side comparison.

Cramdown of Secured Debt

Chapter 11 allows aggressive restructuring of secured debt. The most useful tools include:

• Bifurcation under § 506(a). Where a secured creditor is "undersecured" (debt exceeds collateral value), the claim is split into a secured claim equal to the collateral value and an unsecured claim for the deficiency.
• Extended amortization and Till interest rates. Secured debt can be paid over a court-approved period at a rate equal to the prime rate plus a risk premium (typically 1-3%).
• Lien stripping. A wholly unsecured junior lien (such as a second mortgage where the senior mortgage exceeds the property's value) can be voided in Chapter 11 in non-residential and certain residential contexts.
• Surrender or sale. Unwanted collateral can be surrendered or sold under § 363, with the lien attaching to the proceeds.

The Exclusivity Period (Traditional Chapter 11)

In traditional Chapter 11, the debtor has the exclusive right to file a plan for the first 120 days after the petition. Acceptance of that plan by creditors gets another 60 days, for a maximum exclusivity period of 180 days unless extended (and the statute caps extensions at 18 months for filing and 20 months for solicitation). After exclusivity terminates, any party in interest can propose a competing plan. Subchapter V eliminates exclusivity disputes because only the debtor can propose a plan in a Subchapter V case.

What Documents You Will Need to File

• Two years of federal and state tax returns for the entity
• Two years of profit-and-loss statements and balance sheets
• Most recent 90 days of bank statements for all accounts
• Aged accounts receivable and accounts payable reports
• Schedule of leases, contracts, and equipment financing
• Schedule of secured debt, including UCC-1 filings and security agreements
• Personnel roster, current payroll register, and payroll tax filings
• Insurance certificates for all required coverage
• List of pending litigation, both as plaintiff and as defendant
• Customer list and projected revenue by customer or revenue stream

Subchapter V also requires the debtor to file recent balance sheets, statements of operations, cash-flow statements, and most recent federal tax returns under § 1116. The earlier these documents are organized, the smoother the case.

Common Reasons Chapter 11 Cases Fail

• Over-optimistic projections. Revenue forecasts that ignore the seasonality, competitive pressure, or the cash drain of the prior years.
• Failure to maintain post-petition tax compliance. Missing a single post-petition payroll deposit can be fatal.
• Inadequate working capital. Filing without enough cash to support the operations through plan confirmation. DIP financing or cash collateral arrangements should be planned before filing.
• Owner unwilling to make operational changes. If the business is failing because the cost structure is wrong, a plan that does not address that structure will fail too.
• Loss of key vendors or customers. Filing without securing critical vendor relationships can starve the business immediately after filing.

Individual Chapter 11 Filings

Individuals whose debts exceed the Chapter 13 ceilings (currently $2,750,000 in aggregate non-contingent liquidated debt for the unified limit under recent amendments, though caps have fluctuated) sometimes file individual Chapter 11. Real estate investors with multiple investment properties, high-income professionals with significant tort or guaranty exposure, and individuals with large tax liabilities are common candidates. Individual Chapter 11 follows the general Chapter 11 framework with several individual-specific adjustments under § 1115 regarding post-petition earnings and discharge timing.

Frequently Asked Questions

Will my Chapter 11 become public?

Yes. All bankruptcy filings are public records, and Chapter 11 filings of meaningful size are often reported in local business press. We address communications strategy – with customers, vendors, employees, and lenders – as part of pre-filing planning.

Can I keep my management team in place?

Yes, in nearly all cases. The DIP is run by existing management. The U.S. Trustee can move to appoint an examiner or trustee under § 1104 for cause, but appointment of a trustee is the exception rather than the rule and is reserved for cases involving fraud, dishonesty, incompetence, or gross mismanagement.

How much does a Subchapter V case cost?

Subchapter V cases vary widely. The court filing fee is $1,738 (subject to change). Attorney fees, Subchapter V trustee fees, and accountant fees depend on the complexity of the case, the number of creditors, the level of litigation, and the negotiation required for plan confirmation. We provide an estimated budget after the initial consultation and engagement.

What is a "first-day motion"?

First-day motions are filed simultaneously with the petition (or shortly after) and address the urgent operational issues that arise immediately on filing – authority to pay pre-petition wages, use cash collateral, maintain bank accounts, honor customer deposits, continue insurance, and so forth. A well-prepared first-day package keeps the business running smoothly through the disruption of filing.

Schedule a Consultation

Chapter 11 and Subchapter V are complex proceedings that benefit from early planning. If you are running a small business considering reorganization, or if you are an individual whose debts exceed the Chapter 13 limits, call 786-522-1411 or email [email protected] for a confidential consultation. The Law Offices of Albert Goodwin, PA represents reorganization clients throughout the U.S. Bankruptcy Court for the Southern District of Florida from our office at 121 Alhambra Plaza, Suite 1000, Coral Gables, FL 33134.