11 U.S.C. Section 1191 - Confirmation of Plan in Subchapter V

What Is Section 1191?

Section 1191 sets the standards for confirmation of a plan in a Subchapter V case. Subchapter V, added by the Small Business Reorganization Act of 2019 (SBRA), provides a streamlined Chapter 11 path for small-business debtors. The signature feature of Subchapter V is the availability of a nonconsensual path to confirmation that dispenses with the absolute priority rule and the impaired-class-acceptance requirement of standard Chapter 11.

To proceed under Subchapter V, a debtor must satisfy the small-business eligibility requirements of Section 1182. As of the current statute, eligibility is generally limited to debtors with aggregate non-contingent, liquidated secured and unsecured debts of not more than the inflation-adjusted threshold, subject to legislative changes that have periodically raised and lowered the cap.

Consensual Confirmation: Section 1191(a)

Under Section 1191(a), the court "shall confirm a plan" only if all of the requirements of Section 1129(a) (other than paragraph (15)) are met. In practice, this means every impaired class has accepted the plan, the plan is feasible, the debtor has complied with the Bankruptcy Code, and the plan meets the best-interests-of-creditors test.

When confirmation is consensual under 1191(a), the discharge under Section 1192 is entered on the effective date of the plan, not after completion of payments. This is a significant departure from the nonconsensual confirmation regime and from Chapter 13 practice.

Nonconsensual Confirmation (Cramdown): Section 1191(b)

Section 1191(b) is the cramdown provision. If all consensual confirmation requirements except for the impaired-class acceptance requirement of Section 1129(a)(8), the absolute-priority rule of Section 1129(a)(10), and the new-value requirement of Section 1129(b) are met, the court "shall, notwithstanding section 1129(a)(8), (a)(10), and (b), confirm the plan" if it does not discriminate unfairly and is fair and equitable.

This eliminates two of the most significant obstacles to confirmation in standard Chapter 11 small-business cases: the need to obtain at least one accepting impaired class of non-insider creditors, and the absolute-priority rule that would otherwise require equity to either pay creditors in full or contribute new value.

The Modified Fair-and-Equitable Standard: Section 1191(c)

Section 1191(c) defines what "fair and equitable" means in the Subchapter V cramdown context. For secured claims, the standard tracks Section 1129(b)(2)(A): the plan must provide retention of the lien and deferred cash payments equal to the present value of the collateral, sale subject to credit-bidding, or the indubitable equivalent.

For unsecured claims, in lieu of the absolute-priority rule, the debtor must commit to one of two things:

• 1191(c)(2)(A): Pay all of the debtor's projected disposable income (as defined in Section 1191(d)) for a period of not less than 3 years nor more than 5 years, beginning on the date of the first payment under the plan; or
• 1191(c)(2)(B): Distribute property of a value, as of the effective date, equal to the projected disposable income for that 3-to-5-year period.

The plan must also demonstrate a "reasonable likelihood that the debtor will be able to make all payments under the plan" and contain "appropriate remedies, which may include the liquidation of nonexempt assets, to protect the holders of claims or interests in the event that the payments are not made."

Disposable Income Defined: Section 1191(d)

Section 1191(d) defines "disposable income" as income received by the debtor that is not reasonably necessary for the maintenance or support of the debtor or a dependent; for a domestic-support obligation that first becomes payable after the petition; or for the payment of expenditures necessary for the continuation, preservation, or operation of the debtor's business.

The business-expense carve-out is the most important practical feature: a Subchapter V debtor can deduct legitimate operating expenses before computing the income that must be committed to creditors. This is materially more favorable to operating businesses than the consumer Chapter 13 disposable-income test of Section 1325(b).

Effective Date and Practical Effect

Under Section 1191(a), consensual confirmation triggers immediate discharge (Section 1192). Under Section 1191(b), discharge is deferred until the debtor completes all payments due within the first 3 to 5 years of the plan. This creates a strong incentive for debtors to seek consensual confirmation where feasible.

The combination of nonconsensual cramdown, no absolute-priority rule, business-expense deduction, and deferred discharge has made Subchapter V the dominant small-business reorganization vehicle since its enactment in 2020. Courts have generally interpreted the SBRA's provisions in favor of debtor flexibility, consistent with the statute's purpose of expanding access to reorganization for small businesses.

Related Bankruptcy Code Sections

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

• Section 1181 - Inapplicability of other Chapter 11 sections in Subchapter V
• Section 1182 - Subchapter V definitions and eligibility
• Section 1183 - Subchapter V trustee
• Section 1190 - Acceptance of plan
• Section 1192 - Discharge in Subchapter V
• Section 1129 - Standard Chapter 11 confirmation requirements

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