The Debt Limit
To qualify as a "small business debtor" under Section 101(51D), the debtor must have aggregate noncontingent liquidated debts not exceeding $7,500,000.
Key definitions:
- Noncontingent: The debt is not dependent on a future event. A guarantee that has not been called is contingent. A loan that is due and owing is noncontingent.
- Liquidated: The amount can be readily determined. A contract debt for $50,000 is liquidated. A pending personal injury lawsuit with no set amount is unliquidated.
- Aggregate: All debts are combined -- secured and unsecured, priority and general.
History: The original SBRA set the limit at $2,725,625. The CARES Act (2020) temporarily raised it to $7,500,000 in response to COVID-19. The Bankruptcy Threshold Adjustment and Technical Corrections Act (2022) made the $7.5 million limit permanent.
The 50% Business Activity Requirement
At least 50% of the debtor's debts (excluding debts owed to affiliates or insiders) must arise from the debtor's commercial or business activities. This prevents purely consumer debtors from using Subchapter V.
The debtor must also be engaged in commercial or business activities at the time of filing (or within a recent period). A debtor who shut down the business two years ago and is simply trying to wind down debts may not qualify.
Who Is Excluded
Certain entities cannot use Subchapter V even if they meet the debt limits:
- Single asset real estate entities -- A debtor whose primary asset is a single property or project (subject to definition in Section 101(51B))
- Publicly traded companies -- Companies with publicly traded equity securities
- Debtors who are affiliates of issuers of publicly traded securities
Gray area: Courts continue to litigate the boundaries of "commercial or business activities" and the single-asset-real-estate exclusion. Consult an attorney if your eligibility is unclear.
Individuals in Subchapter V
Individuals can file Subchapter V. This is particularly useful for:
- Sole proprietors whose business debts are personal debts
- Independent contractors with significant business-related obligations
- Professionals (doctors, lawyers, consultants) whose debts are primarily from practice operations
For individual debtors, the cramdown discharge under Section 1192 is subject to Section 523(a) exceptions -- the same nondischargeable debt categories that apply in Chapter 7 and Chapter 13. This differs from corporate debtors, whose discharge is broader.
Check eligibility: 1328f.com discharge screener | Related: meanstest.org
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