Subchapter V: Essential Insights for Credit Professionals

With the Small Business Reorganization Act (SBRA) that went into effect on February 19, 2020, Congress amended the Bankruptcy Code to create a new subchapter to Chapter 11 for the reorganization of small business debtors. Unlike the existing small business provisions under Chapter 11, Subchapter V offers an alternative path that small businesses can elect to follow when filing for bankruptcy.

This new subchapter was designed to address the unique challenges that small businesses face in traditional Chapter 11 cases, such as high costs, lengthy timelines and stringent requirements that often make reorganization unattainable.

Despite its benefits, Subchapter V also raises concerns. While it has been praised for its success in streamlining the bankruptcy process, questions remain about whether it truly leads to successful reorganizations or merely postpones inevitable business failures—with unsecured trade creditors paying the price.

This white paper will explore these issues in depth, examining the practical implications of Subchapter V for B2B trade creditors, who must navigate this new landscape while managing the risks associated with small business bankruptcies.