11 U.S.C. Section 1182 - Subchapter V Definitions

What Is Section 1182?

Section 1182 contains the definitions that govern who may elect to proceed under Subchapter V of Chapter 11. The two most important defined terms are "debtor" (Section 1182(1)) and "small business debtor" (Section 1182(1)(A) and (B), cross-referencing Section 101(51D)).

Subchapter V was enacted by the Small Business Reorganization Act of 2019, effective February 19, 2020. Congress temporarily raised the debt cap from $2,725,625 to $7,500,000 under the CARES Act, and that elevated cap has been extended through subsequent legislation. The cap is subject to inflation adjustment and to legislative reauthorization; practitioners must verify the current threshold at filing.

Who Qualifies as a Subchapter V Debtor?

Section 1182(1) defines "debtor" for Subchapter V purposes as "a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than the applicable debt cap."

The definition has several moving parts:

• Person: Includes individuals, partnerships, and corporations under Section 101(41).
• Engaged in commercial or business activities: Courts have generally interpreted this broadly to include past business activity; the debtor need not currently be operating, but a purely consumer debtor cannot proceed under Subchapter V.
• Affiliate: Affiliated debtors are aggregated for purposes of the debt cap, preventing a corporate group from splintering to fit under the cap.
• Single-asset real estate exclusion: A debtor whose primary activity is owning single-asset real estate, as defined in Section 101(51B), is excluded from Subchapter V.
• Debt cap: Aggregate noncontingent, liquidated secured and unsecured debts must be at or below the threshold. Contingent and unliquidated debts (such as personal-injury claims of disputed amount) generally do not count.

The 50-Percent Business-Debt Test

Section 1182(1)(A) further requires that not less than 50 percent of the debtor's debt arose from the commercial or business activities. This 50-percent threshold excludes debtors whose obligations are predominantly consumer in nature, even if they technically operate a business.

Debts owed to one or more affiliates or insiders are excluded from both the numerator and the denominator of the 50-percent calculation. This is intended to ensure that the test measures genuine commercial activity rather than intra-family or intra-group obligations that might inflate or deflate the percentage artificially.

Excluded Entities: Section 1182(1)(B)

Several entity types are excluded from Subchapter V eligibility even if they otherwise satisfy the engaged-in-business and debt-cap requirements:

• Members of a group of affiliated debtors that have aggregate noncontingent liquidated secured and unsecured debts in excess of the debt cap.
• Corporations subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (i.e., publicly reporting companies).
• Affiliates of issuers as defined in Section 3 of the Securities Exchange Act of 1934, where the affiliate is itself a public reporting issuer.

The public-reporting exclusion ensures that the streamlined Subchapter V process is reserved for genuinely small businesses, not subsidiaries of public companies.

Election and Designation

A debtor that satisfies the Section 1182 definitions must affirmatively elect Subchapter V treatment by checking the appropriate box on the petition or filing an amended petition. The election is governed by Federal Rule of Bankruptcy Procedure 1020. Once made, the election triggers the appointment of a Subchapter V trustee under Section 1183, the status conference under Section 1188, and the streamlined plan-filing deadline of Section 1189.

Creditors and parties in interest may challenge a debtor's Subchapter V designation by motion. The court may strike the election if the debtor does not meet the statutory criteria, with the case continuing as a standard Chapter 11.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 101 - General definitions, including 101(51D) small-business debtor and 101(51B) single-asset real estate
• Section 1181 - Inapplicability of certain Chapter 11 provisions
• Section 1183 - Subchapter V trustee
• Section 1189 - Streamlined plan-filing deadline
• Section 1191 - Plan confirmation in Subchapter V

Understanding how these sections interact is important for debtors, creditors, trustees, and counsel navigating a bankruptcy case.