Introduction — Why precise financials and projections matter in a Subchapter V filing
Subchapter V (the small‑business track of Chapter 11) can be faster and less costly than a traditional Chapter 11, but it places a premium on accurate financial information and credible projections. Courts require a plan that includes a liquidation analysis and projections showing the debtor’s ability to make plan payments — and debtors must move quickly: timeframes are accelerated in Subchapter V.
Important practical note for Los Angeles filers: the federal debt thresholds that determine Subchapter V eligibility changed after June 21, 2024. If your business’s total noncontingent, liquidated secured and unsecured debt falls near the statutory limit, confirm the current threshold before proceeding with a Subchapter V election. Local bankruptcy courts published guidance when the threshold reverted; always verify eligibility with your counsel.
This article walks through the financial packages and projection models most commonly requested by trustees, judges, and creditors in Subchapter V cases in the Central District of California (Los Angeles), and gives a practical checklist so you can prepare efficiently with your CPA and bankruptcy team.
Block 1 — Documents & financial statements to assemble before filing
Collecting complete, reconciled financial records before filing both speeds the case and improves credibility. At minimum prepare the following (deliverable examples shown in parentheses):
- Core historical financials — last 2–3 years: P&L (yearly and monthly), balance sheets, and statement of cash flows (PDFs and native spreadsheets).
- Tax returns — business (and relevant personal) federal and state returns for the prior 2–3 years.
- Bank and merchant statements — business and personal accounts for the 3–6 months surrounding the petition date (downloadable PDFs).
- Accounts receivable & payable detail — aged A/R and A/P ledgers, customer concentration summaries, major contracts and invoices supporting receivables.
- Payroll records — payroll journals, payroll tax filings, and vendor/contractor agreements.
- Inventory and fixed assets — recent counts, valuation support, depreciation schedules, titles and valuations for vehicles or real property.
- Debt and lease schedules — loan statements, promissory notes, UCCs, lease agreements (including cure amounts and upcoming expirations).
- Insurance, licenses, and material contracts — supplier contracts, customer contracts, insurance declarations.
- Legal and tax contingencies — pending litigation, tax audits, environmental or employee claims documentation.
- Bankruptcy-specific forms and exhibits — draft schedules (Official Forms for schedules and the Statement of Financial Affairs), a preliminary liquidation worksheet, and a draft plan exhibits folder. (Courts typically expect the Schedules and SOFA to reconcile to your financial statements.)
Practical filing checklist resources and local court checklists illustrate the level of documentation courts expect at filing — build your packet from those checklists so nothing is omitted.
Reminder about the 341 meeting and pre‑status obligations: Subchapter V requires a status conference and a pre‑status conference report describing efforts to reach a consensual plan; in many districts, 341 meetings are held telephonically — check the U.S. Trustee and local court notices for joining instructions.
Block 2 — Building projections & the liquidation analysis (practical modeling steps)
Section 1190 of the Bankruptcy Code explicitly requires a plan to include a liquidation analysis and projections about the debtor’s ability to make plan payments; the projections are the foundation of a Subchapter V plan’s feasibility showing. Prepare projections that a judge, trustee, and creditors can test.
Projection scope & format
- Provide monthly cash‑flow projections for the first 12 months (tabs or spreadsheets with lines for receipts, direct costs, payroll, rent, taxes, interest, capex, debt service, and other operating disbursements).
- Supply quarterly or annual projections for years 2–3 (to show medium‑term sustainability and plan feasibility).
- Include a rolling cash balance (Beginning Cash → Cash Inflows → Cash Outflows → Net Cash → Ending Cash) and identify any shortfalls and required liquidity sources.
Key assumptions and exhibits
- Attach a clear assumptions tab: sales drivers, pricing, customer retention, gross margin percentages, payroll headcount and wages, rent concessions (if any), tax rates, and expected timing of big receipts (e.g., vendor paydowns, litigation recoveries).
- Provide supporting schedules: revenue build (by location or product), A/R collection curves, A/P timing, new‑value contributions or capital injections, and any committed financing offers.
- Run sensitivity scenarios: base case, downside (15–30% revenue decline), and upside — produce corresponding monthly cash positions for each scenario so the court and creditors can see the plan’s resilience.
Preparing the liquidation analysis
The liquidation analysis (also called the "best interests" or Chapter 7 comparison) must estimate the likely recoveries to secured, priority and unsecured creditors in a hypothetical Chapter 7 liquidation. Conservative assumptions are appropriate — include:
- Estimated gross realizable value of assets (by class), likely professional fees and trustee costs, wind‑down period (typical 60–120 days), and the order of priority for distributions.
- Where markets for assets exist (e.g., inventory, FF&E), support valuation with comparable sales or broker quotes. Explain any going‑concern value you attribute to continued operation under the plan.
Sample mini cash‑flow table (blank template)
| Month | Beginning Cash | Cash Inflows | Cash Outflows | Net Cash | Ending Cash |
|---|---|---|---|---|---|
| Month 1 | $ | $ | $ | $ | $ |
| Month 2 | $ | $ | $ | $ | $ |
| ... | $ | $ | $ | $ | $ |
Tip: judges and trustees prefer working spreadsheets with formulas visible (not just PDFs) so they can test sensitivities and reconcile totals to filed schedules.
Block 3 — Timeline, filings and next steps for Los Angeles Subchapter V cases
Key statutory and procedural milestones you must plan for:
- Status conference and pre‑status report: the court will schedule a status conference (generally within 60 days) and the debtor must file a report describing efforts to achieve a consensual plan (usually due 14 days before the status conference). Build the pre‑status report from outreach logs and settlement offers.
- Plan filing deadline: the debtor must file its Subchapter V plan no later than 90 days after the order for relief (the court may extend for cause). Your projections and liquidation analysis must be ready in time to attach or reference in the plan exhibits.
- Periodic reporting: small business and Subchapter V debtors use Official Form 425C for periodic operating reports (MORs) until confirmation; confirm local formatting and service requirements with the U.S. Trustee and the Central District’s CM/ECF guidance.
Who to involve and when
- Bankruptcy counsel — retained early to manage timelines, draft the plan template, and coordinate disclosures.
- CPA / restructuring advisor — to prepare historical financials, prepare and stress‑test the cash‑flow models, and assist with the liquidation analysis.
- Forensic accountant (if needed) — for reconciling messy books, tracing transfers, or addressing potential avoidance or preference exposure.
- Commercial valuation or broker — when your assets’ realizable values (inventory, equipment, real estate) are material to the liquidation analysis.
Final practical checklist: reconcile schedules to tax returns and bank statements, label exhibits clearly (Exhibit A: historical P&Ls; Exhibit B: cash‑flow model; Exhibit C: liquidation analysis), and prepare an executive summary that explains the core assumptions in plain English. Courts and creditors appreciate transparency and a concise roadmap to the projections and exhibits.
If you need help validating eligibility, confirming local court practices, or building the projection exhibits, contact a Los Angeles bankruptcy attorney and an experienced CPA who work together on Subchapter V matters. Acting early and producing professional, reconciled financials is the single best way to preserve value and persuade stakeholders that the business can reorganize successfully.