The Four Requirements
To elect Subchapter V, you must satisfy all four of these requirements at the time of filing:
- You must be a "person" engaged in commercial or business activities. This includes individuals, corporations, LLCs, partnerships, and sole proprietorships. "Person" under the Bankruptcy Code is broad.
- Your total noncontingent, liquidated debts must not exceed $7,500,000. This includes both secured and unsecured debts, but excludes debts owed to affiliates or insiders.
- At least 50% of those debts must arise from commercial or business activities. This is the "business debt" test -- your debts must be predominantly business-related, not personal.
- You must not be a "single asset real estate" debtor. If your business is essentially one piece of real property generating income, you are excluded.
Key statute: 11 U.S.C. § 101(51D) defines "small business debtor" for Subchapter V eligibility.
See also: 11 U.S.C. § 101(51B) (single asset real estate definition)
The $7.5 Million Debt Limit
The debt ceiling has a specific history that matters:
- Original (Feb 2020): $2,725,625
- CARES Act temporary increase (Mar 2020): $7,500,000
- Extended through Jun 2024 by subsequent legislation
- Made permanent (Jun 2024): Bankruptcy Threshold Adjustment and Technical Corrections Act of 2022 locked $7.5 million as the permanent threshold
Only noncontingent, liquidated debts count toward the limit. This means:
- Contingent debts do not count. If you guaranteed a loan but the borrower has not defaulted, that guarantee is contingent and excluded.
- Unliquidated debts do not count. If someone has sued you but the amount has not been determined, that claim is unliquidated and excluded.
- Debts to affiliates or insiders are excluded. If you owe money to a related entity or family member, those debts do not count toward the cap.
Litigation trap: If you have a pending lawsuit against you with an unliquidated claim, it does not count toward the $7.5 million. But if a judgment is entered before you file, that amount becomes liquidated and counts. Timing matters.
The 50% Business Debt Test
This is where eligibility disputes happen most often. You must show that at least 50% of your noncontingent, liquidated debts (excluding debts to affiliates/insiders) arose from commercial or business activities.
What counts as business debt
- Business loans and lines of credit
- Commercial leases
- Trade payables (vendor debts)
- Business credit cards used for business purposes
- Equipment financing
- Tax debts arising from business operations
- Debts from personal guarantees of business obligations
What counts as personal debt
- Home mortgage (unless the property is used in business)
- Personal credit cards used for personal expenses
- Student loans
- Medical bills (unless business-related)
- Personal auto loans (unless the vehicle is used primarily for business)
Tip: Personal guarantees of business debts are generally treated as business debts for the 50% calculation. If you personally guaranteed your company's lease or loan, that debt likely counts as business-related.
Who Can File
| Entity Type | Eligible? | Notes |
|---|---|---|
| Corporation | Yes | Must meet debt limit and 50% test |
| LLC | Yes | Single-member and multi-member |
| Partnership | Yes | General and limited partnerships |
| Sole proprietor | Yes | Files as an individual; business and personal debts combined |
| Independent contractor | Yes | Must show commercial activity |
| Gig worker / freelancer | Potentially | Must meet the 50% business debt test |
| Publicly traded company | No | Excluded by statute |
| SEC reporting company | No | Excluded by statute |
| Single asset real estate | No | Excluded -- use traditional Chapter 11 |
The Single Asset Real Estate Exclusion
If your business is primarily about owning and operating a single piece of real property that generates substantially all of your income, you do not qualify for Subchapter V. You are a "single asset real estate" (SARE) debtor under 11 U.S.C. § 101(51B).
This exclusion catches:
- Apartment buildings owned by a single-purpose LLC
- Commercial office buildings with one owner-entity
- Shopping centers or strip malls owned by a holding company
It does not catch businesses that happen to own real property as part of broader operations. A restaurant that owns its building is not SARE -- the restaurant is the business, not the real estate.
Common Eligibility Mistakes
- Miscounting debts. Including contingent or unliquidated debts in the $7.5 million calculation (they should be excluded) or excluding debts that are actually liquidated.
- Failing the 50% test by a thin margin. A home mortgage can push your personal debt above 50%. If you are close, look carefully at which debts qualify as business-related.
- Not electing Sub V at filing. You must affirmatively designate your case as Subchapter V on the petition. You can amend the designation later, but the initial election matters for trustee appointment timing.
- Affiliate debt confusion. Debts to affiliates are excluded from both the $7.5 million cap and the 50% calculation. Make sure you correctly identify affiliate relationships.
- Waiting too long after a judgment. An unliquidated claim that becomes liquidated through a judgment can push you over the debt limit. File before the judgment if eligibility is tight.
Contested eligibility: Creditors and the UST can challenge your Subchapter V eligibility. If challenged, the burden is on the debtor to prove eligibility. Courts look at the nature of the debts at the time of filing, not at the debtor's subjective characterization.
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Discharge Screener · Research Platform · Exemptions by State · Keep Your Car · Bankruptcy Cost · Pro Se Guide