Do I Qualify for Subchapter V? The Rules, the Debt Limit, and What Actually Counts
One of the first questions I get from small business owners considering Subchapter V is some version of: “Do I even qualify for this?”
It’s a fair question. Subchapter V isn’t available to everyone, and the eligibility rules have a few moving pieces that trip people up. This post walks through exactly who qualifies, how the debt limit works, and what you need to know before you sit down with an attorney.
The Short Version
To qualify for Subchapter V, you generally need to meet three criteria:
- You are a person or entity engaged in commercial or business activities
- Your total debt is at or below the current limit
- At least half of your debt arose from your business or commercial activities
There are a few additional disqualifiers we’ll cover below, but those three are the core of it.
You Have to Be Running (or Have Recently Run) a Business
This one sounds obvious, but it matters. Subchapter V is not available to individuals who have purely consumer debt, credit cards, a mortgage, medical bills from a personal illness with no business component. It’s designed for businesses and for people whose debt is primarily tied to operating a business.
That said, “business” is defined broadly. You don’t have to be a corporation or LLC. A sole proprietor qualifies. A freelancer or independent contractor with business-related debt can qualify. A small real estate investor who manages properties as a business activity can potentially qualify. The key is that you are engaged in some form of commercial activity, not just holding personal debt.
The Debt Limit: Where Things Get Specific
As of the time of writing, the Subchapter V debt limit is $3,424,000 in aggregate noncontingent liquidated secured and unsecured debt.
A few things to unpack there:
“Aggregate” means the total across all your debts combined, not just one creditor, not just unsecured debt. Everything.
“Noncontingent” means debts that are definite and currently owed, as opposed to potential future obligations (like a lawsuit that hasn’t been decided yet). Contingent debts generally don’t count toward the limit.
“Liquidated” means debts where the amount is fixed and certain. If you’re disputing a debt and the amount is genuinely uncertain, it may be treated as unliquidated and excluded from the calculation.
Secured and unsecured — both count. Your mortgage on business property, your SBA loan, your line of credit, your vendor payables. It all goes into the total.
The bottom line: if your total business debt is under roughly $3 million and it’s clearly owed, you’re likely within range. If you’re close to the limit, the classification of specific debts (contingent vs. noncontingent, liquidated vs. unliquidated) matters a lot and is worth analyzing carefully with counsel.
The 50% Business Debt Requirement
At least half of your qualifying debt has to have arisen from commercial or business activities. This requirement exists to make sure Subchapter V isn’t used by people who are really just carrying consumer debt and happen to have a side business.
For most genuine small business owners, this isn’t a hard hurdle to clear. Your business loans, lines of credit, lease obligations, vendor accounts, and equipment financing almost certainly push your business debt well over 50%.
Where it gets more complicated is for people who have significant personal debt alongside their business debt, a large personal mortgage, consumer credit cards, student loans, medical bills. If your personal debt is substantial relative to your business debt, you may not meet the 50% threshold even if your business debt is real and meaningful.
Who Is Excluded from Subchapter V
A few categories of debtors cannot use Subchapter V even if they otherwise meet the criteria:
Single-asset real estate debtors. If your primary business activity is holding a single piece of real estate that generates substantially all of your income, you fall into a separate category under the bankruptcy code and Subchapter V is not available to you. Regular Chapter 11 is still an option, but the rules are different.
Publicly traded companies. Subchapter V is for small, privately held businesses. If your company has securities registered under the Securities Exchange Act, you don’t qualify.
Affiliates of publicly traded companies. Same principle — if you’re a subsidiary or affiliate of a public company, Subchapter V isn’t available.
One More Thing: The 90-Day Plan Requirement
This isn’t an eligibility rule exactly, but it’s a practical constraint that shapes how Subchapter V works. Once you file, you have 90 days to file a reorganization plan. That’s a tight deadline.
It’s one of the reasons why Subchapter V cases move faster than traditional Chapter 11, and why it’s important to have your financial picture reasonably organized before you file, not after.
What If I’m Close to the Debt Limit?
If your total debt is hovering near $3 million, the analysis gets fact-specific. Whether a given debt counts toward the limit depends on how it’s characterized, and in some cases, there’s legitimate room for argument. This is exactly the kind of thing you want to work through with an attorney before filing. Filing and then discovering you don’t qualify isn’t just an inconvenience; it can affect your options and timeline significantly.
The Bottom Line
Subchapter V eligibility comes down to three practical questions: Are you a business? Is your total debt under the limit? Is most of that debt business-related? If the answer to all three is yes, you’re likely in a good position to explore it further.
If you’re unsure whether you qualify, especially if you’re close to the debt ceiling or have a mix of personal and business obligations, the best move is to get a real analysis of your specific situation before drawing any conclusions.
I offer free consultations for small business owners throughout the Southern and Eastern Districts of Texas. If you want to walk through whether Subchapter V is a realistic option for your situation, reach out. There’s no obligation, and you’ll leave with a clearer picture of where you stand.
The Law Office of Jeremy T. Wood, PLLC handles Subchapter V and Chapter 11 reorganizations for small businesses throughout the Southern and Eastern Districts of Texas. Evening and weekend appointments available. Virtual consultations offered.