Subchapter V vs Chapter 13
Two reorganization options for small business owners. One is designed for businesses, the other for individuals. Here is how to choose.
Side-by-Side Comparison
| Feature | Subchapter V | Chapter 13 |
|---|---|---|
| Who can file | Individuals and entities (LLCs, corps) | Individuals only |
| Debt limit | $7,500,000 | $2,750,000 (combined) |
| Business debt requirement | 50%+ of debts must be business-related | None -- personal debts OK |
| Filing fee | $1,738 | $313 |
| Plan exclusivity | Only the debtor can file a plan | Only the debtor can file a plan |
| Plan deadline | 90 days | No hard deadline (varies by court) |
| Plan duration | Flexible (typically 3-5 years) | 3-5 years (income-based) |
| Trustee role | Facilitates -- does not handle money | Collects and distributes payments |
| Absolute priority rule | Does not apply | Does not apply |
| Means test | Not required | Required (determines plan length) |
| Discharge timing | At confirmation (1191a) or plan completion (1191b) | After completing all plan payments |
| Typical attorney fees | $4,000 - $20,000 | $2,500 - $6,000 |
When to Choose Subchapter V
- Your business is an LLC or corporation. Chapter 13 is for individuals only. If your business entity needs bankruptcy protection, Sub V is the path.
- Your debts exceed $2,750,000. Chapter 13 has a hard debt cap. Sub V allows up to $7.5 million.
- You need plan flexibility. Sub V plans can modify secured debt terms, propose varying distribution schedules, and structure payments around business cash flow cycles.
- You want to keep running the business. Sub V is built for businesses to continue operating. The trustee facilitates rather than controls.
- You want a faster discharge. Under § 1191(a), discharge comes at confirmation -- potentially within 4-8 months of filing.
When to Choose Chapter 13
- Your debts are primarily personal. If less than 50% of your debts are business-related, you cannot elect Sub V.
- Cost is the primary concern. Chapter 13 has a lower filing fee ($313 vs $1,738) and typically lower attorney fees.
- You are a sole proprietor with modest debts. If your combined debts are under the Chapter 13 limit and mostly personal, Chapter 13 may be simpler.
- You need the automatic stay protection for your home. Chapter 13 has specific provisions for curing mortgage arrears and saving homes from foreclosure.
- Your business is a side venture. If you are primarily a wage earner with a small business on the side, Chapter 13 may be more appropriate.
The Hybrid Situation: Sole Proprietors
If you are a sole proprietor, you technically qualify for both chapters. Your business debts and personal debts are combined because a sole proprietorship is not a separate legal entity.
The decision comes down to:
- Debt amount: Over the Chapter 13 limit? Sub V is your only reorganization option.
- Business complexity: Equipment leases, commercial contracts, business real estate -- Sub V handles these better.
- Plan flexibility: Sub V allows more creative payment structures. Chapter 13 requires committing disposable income for 3-5 years.
- Cost tolerance: Sub V costs more upfront but may save money through faster resolution.
Pro tip: If you are a sole proprietor right at the Chapter 13 debt limit, calculate the 50% business debt test carefully. If you qualify for both, compare the total cost of each path including attorney fees, filing fees, and plan duration.
Related Pages
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Discharge Screener · Research Platform · Exemptions by State · Bankruptcy Cost · Pro Se Guide