Drafting a Subchapter V Plan: Timeline, Key Terms & Common Pitfalls

Introduction — Why Subchapter V Can Be Right for Small Businesses

Subchapter V of Chapter 11 was created to make small-business reorganizations faster, less expensive, and more likely to produce a going-concern result than a traditional Chapter 11. It streamlines confirmation rules, appoints a trustee to facilitate consensual plans, removes the requirement for Trustee quarterly fees, and imposes accelerated case-management deadlines.

Eligibility is limited by a statutory debt cap that has changed since Subchapter V began; for cases filed on or after June 22, 2024 the adjusted ceiling is $3,024,725 (aggregate, noncontingent, liquidated secured and unsecured debt). Confirm eligibility early — the debt limit and how the statute defines a "small business debtor" matter to the very choice to proceed under Subchapter V.

This article gives a practical timeline, explains the key statutory terms you must address in your plan, and lists common drafting and process pitfalls to avoid when preparing a Subchapter V plan in the United States.

Practical Timeline: What to File and When

Subchapter V cases move quickly compared with traditional Chapter 11: the code requires a status conference and a plan-filing deadline designed to push a prompt resolution. Key statutory timing rules to plan around:

• First status conference: no later than 60 days after entry of the order for relief (the court may extend for cause). A pre-status conference report (describing efforts to reach a consensual plan) is due 14 days before this conference.
• Plan filing: the debtor must file a plan no later than 90 days after the petition date, unless the court extends that deadline for cause. Courts frequently allow extensions where the delay is justified, but plan preparation should begin immediately after filing.
• No separate disclosure statement is required: the plan must include a brief business history, a liquidation analysis, and projections of the debtor’s ability to pay under the plan.

Sample simplified timeline (typical milestones):

Note: while these are the statutory targets, district practice and judicial discretion mean many cases take longer; courts often extend the 90‑day plan deadline on a showing of good cause. Start forecasting cash flow and trustee fee estimates immediately — some local rules require the Subchapter V trustee to file a fee estimate before plan deadline.

Key Terms, Confirmation Standards, and Common Pitfalls

Key statutory and practical terms

• Consensual confirmation (§1191(a)) — If all impaired classes accept the plan, most Chapter 11 confirmation requirements apply (except the projected disposable income rule in §1129(a)(15)).
• Nonconsensual confirmation (§1191(b) and (c)) — If any impaired class rejects the plan, the court may confirm a plan that does not "discriminate unfairly" and is "fair and equitable". For nonconsensual confirmations the plan generally must commit the debtor’s projected disposable income to payments for a three‑year period (court may extend up to five years). Feasibility and reliable projections are central to satisfying this test.
• Subchapter V trustee — A trustee is appointed in every Subchapter V case to help negotiate and evaluate a plan; the trustee’s duties include facilitating a consensual plan and investigating the debtor when ordered. Subchapter V debtors are exempt from U.S. Trustee quarterly fees.
• Discharge timing (§1192) — If confirmation is consensual the discharge occurs at confirmation; if the plan is nonconsensual the discharge generally follows completion of payments over the plan term (first three years, up to five if the court orders). Make sure the plan’s payment schedule and proposed remedies (liquidation, acceleration) are expressly drafted.

Common drafting and process pitfalls (and how to avoid them)

1. Unrealistic projections and feasibility failures. Courts reject plans with unsupported forecasts. Use conservative revenue assumptions, stress-test cash flow, and document assumptions and creditor treatment. Consider attaching a detailed projection appendix to the plan.
2. Failing to apply the "projected disposable income" requirement properly. For nonconsensual plans, demonstrate (with supporting schedules) that disposable income will be applied for the required three‑to‑five‑year period. Analyze what counts as "necessary" operating expenses. Cite and document methodology.
3. Classification and unfair discrimination mistakes. Misclassifying claims or proposing treatment that "discriminates unfairly" invites denial under §1191(b). Map out creditor classes, secured vs. unsecured valuations, and proposed recoveries early and explain any disparate treatment.
4. Underestimating trustee and administrative costs. Local rules may require a trustee fee estimate before plan filing; failing to budget trustee fees, professional fees, and priority claims can destroy feasibility. File trustee fee estimates and model payments into the plan.
5. Ignoring lien valuation and adequate protection issues. If you propose strip-downs, cramdowns, or long-term payments to secured creditors, build a firm valuation record and address adequate protection concerns.
6. Not investigating avoidable preferences and insider transactions. Trustees and creditors will look for preferential transfers or preferential insider payments; address potential recoveries by disclosure and, where appropriate, propose treatment or reserve for objections.

Practical checklist before filing a plan

• Confirm Subchapter V eligibility (debt limits and debt composition).
• Prepare 13‑week (or longer) cash‑flow forecast and sensitivity scenarios.
• Assemble a liquidation analysis and explain value drivers.
• Prepare a proposed treatment matrix for secured, priority, and unsecured creditors.
• Estimate trustee fees and administrative claims; confirm any local rule requirements for trustee notices or fee estimates.
• Engage bankruptcy counsel early and consider a forensic review for potential avoidance exposure.

Conclusion — Subchapter V can be a powerful, less-costly path to reorganization for eligible small businesses, but its accelerated schedule and specialized confirmation tests reward early preparation, conservative cash‑flow modeling, clear creditor treatment, and close coordination with the Subchapter V trustee and local court practice. When in doubt, consult experienced Subchapter V counsel and prepare your evidence and disclosures with the confirmation standards in mind.

Selected sources and further reading: U.S. Trustee Subchapter V overview; adjusted code amounts under 11 U.S.C. §104; IRS and bankruptcy-court practical guidance on Subchapter V timelines; and leading Subchapter V confirmation decisions and practice memos.