Subchapter V Playbook for LA Small Businesses: Case Studies, Plan Templates & Pitfalls After the 2024–2025 Debt‑Limit Changes

Introduction: Why the 2024–2025 Debt‑Limit Changes Matter for Subchapter V Filings in LA

The 2024–2025 cycle of debt‑limit activity and related market volatility has created two practical challenges for Los Angeles small businesses considering Subchapter V: tighter credit conditions and a narrower pool of eligible debtors after a statutory eligibility reversion. Many businesses that rushed to file while the temporary higher Subchapter V cap was in place are now facing different legal and commercial dynamics if they need to amend, refinance, or refile.

Key federal developments to note:

• The temporary expansion of Subchapter V eligibility (the higher $7.5M cap that applied during and after the COVID relief acts) was not renewed in full — the eligibility threshold reverted, affecting who can access Subchapter V.
• The reinstated debt‑limit process and market reactions have increased borrowing costs and front‑end volatility for short‑term finance (T‑bills, repo) — an important consideration for cash‑constrained debtors who will rely on post‑petition DIP liquidity and rent/lease negotiations.
• Treasury and policy analysts have warned that debt‑limit episodes raise funding costs and create timing risk that can materially affect debtor cash‑flow projections and plan feasibility. That makes rigorous stress testing and conservative cash‑flow buffers more important than ever in plan design.

This article gives a Los Angeles‑specific playbook: practical next steps, a Subchapter V plan skeleton adapted for LA small businesses, real case examples, and the most common pitfalls trustees and judges see since the 2024–2025 debt‑limit episode.

Quick Readiness Checklist & Step‑by‑Step Playbook for LA Owners

Before filing (or before you amend an existing Subchapter V case), run this checklist — it maps practical court deadlines and market realities to operational actions:

1. Eligibility & Timing: Confirm your aggregate noncontingent, liquidated secured and unsecured debts meet the current statutory cap for Subchapter V. If your debts exceed the cap you are not eligible for Subchapter V and must consider traditional Chapter 11 alternatives or out‑of‑court workouts. (Note: the temporary higher cap that expanded eligibility in prior years was allowed to expire and has affected which companies qualify).
2. Lock the 90‑day plan window into your calendar: Under Subchapter V, the debtor generally must file a plan within 90 days of the order for relief (extensions allowed only in narrow circumstances). Build team, advisor, and data deadlines to meet that timeline.
3. Cash‑flow triage: Model 13‑week and 52‑week scenarios that include higher interest and possible supply‑chain shocks; stress test for T‑bill/repo dislocations and tighter lines of credit. Use conservative revenue ramps and maintain a cash cushion for administrative priority claims and payroll.
4. Preserve documentation: Collect bank statements (12–24 months), tax returns (2–3 years), leases, vendor contracts, insurance certificates, and receivable aging. Incomplete disclosure is a leading cause of trustee objections and conversions.
5. DIP & interim financing plan: If you need post‑petition liquidity, identify potential DIP lenders and prepare realistic budgets and adequate protection proposals — creditors and trustees will demand early clarity on how operations will be funded.
6. Local practice & trustee contacts: Check Central District local rules and standing trustee procedures; LA judges and standing trustees have recurring preferences for MOR format, hearing notices, and timing. Early contact with the Subchapter V trustee pays dividends.

When to file amendments or avoid filing: If eligibility changed because of the 2024–2025 statutory shifts, get counsel’s assessment before filing an amended petition or converting — procedural missteps on eligibility can be grounds for dismissal or re‑designation.

Practical Subchapter V Plan Skeleton (Template Elements for LA Cases)

Use this skeleton to structure a first draft of a Subchapter V plan for negotiation and court filing. It is a practical checklist—every plan needs tailoring, independent valuation support, and counsel review.

Core plan sections (what the court expects)

• Executive summary / overview — business description, events leading to filing, restructuring goals, projected lived‑in value post‑confirmation.
• Plan term sheet — length of plan (months/years), payment sources (percent of revenues/escrowed proceeds/sale), timing of administrative expense payments, and treatment of secured claims, lease arrears, and priority taxes.
• Impaired classes and projected recoveries — identify classes, proposed distributions, interest assumptions and present‑value methodology; include liquidation analysis supporting the "best interests" test.
• Feasibility section — detailed 13‑week and longer cash‑flow, key assumptions, stress scenarios (including higher interest and delayed receivables due to market volatility), and contingency triggers (what happens when a covenant or liquidity metric fails).
• Subchapter V trustee role — describe proposed payments to trustee (fees/disbursement mechanics) and how the trustee will administer the plan; note the trustee’s statutory duties.
• Executory contracts & leases — identify critical contracts, proposed cure amounts, and proposed assumption/rejection timetable (tie to DIP liquidity runway and key vendor consents).
• Funding/closing conditions — explicit funding sources, escrow mechanics for initial payments, and milestones for lender or landlord forbearance agreements.
• Release and litigation treatment — proposed releases, retained claims, and any settlement allocations with supporting exhibits and valuation summaries.

Practical drafting tips:

• Attach the cash‑flow model and supporting exhibits to the plan filing or file them contemporaneously so the court and trustee can review feasibility early.
• Use conservative discount rates and justify any revenue uptick with signed contracts, LOIs, or vendor/supplier commitments. Unverified optimism is a common basis for objection.
• Where possible, secure creditor forbearance or pre‑confirmation agreements (e.g., with landlords, taxing authorities) and attach them to the plan — this reduces confirmation risk and shortens contested timelines.

Case Studies, Common Pitfalls and How LA Debtors Should Respond

Real examples and common failure modes illustrate what to avoid and how to recover:

Case references (what to learn)

• Eligibility reversions and filing surges: One major national news report explained that when the temporary Subchapter V debt limit was allowed to expire, many businesses that had relied on the expanded cap were left without Subchapter V eligibility — an outcome that increased filings, complicated cases on the cusp of the cap, and left a wave of businesses scrambling for alternatives. LA debtors should confirm their qualifying debt level before deciding their bankruptcy path.
• Local confirmation practice: Central District and LA judges permit re‑designation and have notable preferences for MOR format and prompt plan filings; familiarity with local rules avoids procedural delays. Early engagement with the Subchapter V standing trustee is frequently a decisive tactical win.
• Market timing and DIP liquidity: Post‑debt‑limit market dislocations have made short‑term funding more expensive and less certain—debtors who relied on fragile bridge financing were more likely to face conversion or dismissal motions. Make DIP commitments concrete before projection reliance.

Common pitfalls & practical mitigations

Pitfall	Consequence	Mitigation
Incomplete disclosures	Trustee objections, dismissal, or conversion	Pre‑filing reconciliation, amend schedules immediately if errors found.
Unrealistic cash‑flow	Plan denial for lack of feasibility	Attach conservative models, obtain third‑party proofs (contracts, vendor concessions).
Ignoring local practice	Procedural delays and contested hearings	Follow Central District local rules; coordinate with standing trustee early.
Overdependence on short‑term funding	Liquidity squeeze if markets reprice	Secure binding DIP commitments or staged lender forbearance with fallback plans.

If you are already in an active Subchapter V case that was filed while the temporary cap applied, counsel should run a eligibility audit and consider whether plan amendments, consensual settlements, or an out‑of‑court refinancing can reduce confirmation risk — courts will scrutinize feasibility closely in a tighter credit environment.

Quick LA example: Counsel in Los Angeles have used Subchapter V to preserve ownership while paying creditors a modest percentage over time, but cases that relied on expected inexpensive refinancing or on optimistic customer recoveries ran into trustee objections and required plan rework. These practical court outcomes underscore why conservative assumptions and early creditor engagement are vital.

Next steps for LA small business owners: compile the readiness checklist, request an eligibility evaluation from experienced Subchapter V counsel, and prepare a conservative cash‑flow and contingency budget before filing or amending a plan. Early, realistic planning reduces the chance of contested confirmation or conversion.