How Chapter 11 (Including Subchapter V) Works for Small Business Owners in Ventura County
Small business owners facing heavy debt have options beyond shutting down. Chapter 11 bankruptcy lets a business reorganize and keep operating while negotiating new terms with creditors. For many smaller companies, Subchapter V of Chapter 11 — created by the Small Business Reorganization Act (SBRA) in 2019 — offers a faster, less expensive path to reorganization.
Below is a practical explanation of how Chapter 11 works for small businesses and what Subchapter V changes mean for owners, sole proprietors, and personal guarantors. For advice and assistance getting your Ventura County small business out of debt and back on its feet, contact Rounds & Sutter, LLP, to speak with an experienced and dedicated Ventura small business bankruptcy lawyer.
Basics of Chapter 11 and Subchapter V
Chapter 11 basics remain familiar: a debtor files a petition in federal bankruptcy court, an automatic stay halts collection activity, and the business owner becomes a debtor-in-possession who continues operating while proposing a reorganization plan to repay creditors over time. Traditional Chapter 11 can be complex and costly: disclosure statements, creditor committees, significant case administration and quarterly U.S. Trustee fees often add time and expense that small businesses can’t absorb. For those reasons, many small businesses historically avoided Chapter 11 even when reorganization was the best long-term option.
Subchapter V was designed to change that calculus by streamlining the process for eligible debtors. Key Subchapter V features include appointment of a Subchapter V trustee to facilitate negotiations (but not to take control of the business), shortened deadlines for filing and confirming a plan, fewer formal procedural burdens (often no disclosure statement is required), and exemption from quarterly U.S. Trustee fees that apply in standard Chapter 11 cases. These changes reduce administrative costs and speed confirmation — outcomes that can be decisive for a struggling local business trying to retain employees and relationships in Ventura County.
Eligibility matters.
Subchapter V originally carried a higher debt threshold for small businesses during the pandemic, but that temporary increase expired in mid-2024. As a result, the current aggregate-debt cap for Subchapter V is $3,424,000 (adjusted for inflation under the bankruptcy code). Businesses or individuals who personally guaranteed business obligations should check whether their total liquidated, noncontingent debts fall under the limit; if so, Subchapter V may be available. Because the eligibility line has shifted in recent years, it is critical to confirm the current limit before planning a filing.
Procedural differences that help small debtors are important to understand.
In Subchapter V, only the debtor may file a plan (creditors cannot submit competing plans), and the debtor generally must file a plan within 90 days of filing the petition unless the court grants an extension for good cause. The Subchapter V trustee plays a facilitative role: reviewing finances, working with the debtor and creditors to build consensus, and, in some cramdown confirmations, acting as disbursing agent under the plan. Courts will still require that plans be proposed in good faith and that they meet the legal standards for confirmation, but the practical path to confirmation is usually shorter and less expensive than in a traditional Chapter 11.
What does this mean for Ventura County small business owners?
First, Subchapter V can preserve value: an Oxnard restaurant, construction contractor, or retail shop may be able to renegotiate leases, stagger secured debt payments, and restructure vendor obligations while continuing to trade. Second, sole proprietors and personal guarantors often find that the line between “business” and “personal” debt is blurred; Subchapter V can be particularly useful where individuals incurred business liabilities in their own names. Third, because Subchapter V cases typically avoid the expense of a creditors’ committee and quarterly trustee fees, more of the debtor’s cash flow can be devoted to operating and implementing a plan.
There are tradeoffs. Subchapter V is not a guaranteed fix: it requires realistic projections, disciplined budgeting, and often a commitment to make plan payments for three or five years. Creditors may still object to the proposed treatment, and courts will scrutinize whether the plan is feasible. Businesses with debts over the Subchapter V cap, or with complicated multi-state creditor structures, may still need full Chapter 11 or alternative workouts.
Practical next steps for Ventura County owners considering Chapter 11 or Subchapter V: gather up recent financials, a list of creditors and secured liens, and any personal guarantees you may have signed. Early consultation with counsel experienced in business reorganizations will let you weigh the timeline, likely costs, and the best route for preserving jobs and business goodwill. If your debts are near the Subchapter V threshold, act promptly — statutory and administrative rules have shifted recently, and eligibility can determine which tools are available to protect your business.
Contact Rounds & Sutter Today
If you’d like help evaluating whether Chapter 11 or Subchapter V could work for your Oxnard, Camarillo, or Ventura County business, Rounds & Sutter, LLP, can review your situation and outline options tailored to your goals, whether that means reorganizing under Subchapter V, pursuing a traditional Chapter 11 strategy, or identifying out-of-court alternatives. Contact us today to discuss your needs and goals.