Makayla Shoults

• Bankruptcy Solutions
• Foreclosure Solutions
• Modification & Negotiation
• Credit Card Debt Relief

Student of University of Colorado-Denver

Ronald D. Weiss, P.C. Scholarship Application Submission

According to the American Bankruptcy Institute’s Solvency 2020 Conference, “About 1,000 small businesses have filed under the Subchapter V, Small Business Debtor Reorganization” (Ryan, 2020) This is a significant number of cases filed within a year of the development of Subchapter V when one looks at the number of there being 7,128 cases filed under Chapter 11 including all subchapters (Douglas et al., 2021). What is causing more businesses to look into Subchapter V bankruptcy? One of the appealing factors is the change in the trustee from being an attorney to now being a businessman. 

This change in trustee is a pinnacle change in the right direction for efficiency and access to bankruptcy for small businesses. A trustee is used as an intermediary position in the development of a repayment plan. This position requires individuals that understand the intricacies of running a business, good communication, and how to broker deals. An attorney may be professionally trained on the maintenance of good communication, negotiating, and bargaining. However, this leaves a gap in their ability to advise a debtor on how to set up a successful plan of reorganization that deals with the underlying issues that may have contributed to the need to file bankruptcy. For example, an attorney may not understand business strategies used on tax forms that could save a small business thousands yearly. These shortcomings hinder the likeliness of a successful plan of reorganization and inherently breeds an adversarial approach that benefits creditors more than debtors. The trustee structure morphing into a businessman will decrease potential conflicts and allow for their expertise to help confirm a plan of reorganization that is likely to be more successful. 

A businessman is a broad title that allows individuals from different academic and career backgrounds to become a trustee. In the above paragraph, I mention the shortcoming of attorneys not understanding the intricacies of running a business. A trustee with a career background as a CPA can review the debtor’s tax forms and make suggestions on exemptions to reduce the amount of reported income for a small business. This could potentially save a debtor thousands yearly and allow for them to reinvest back into business ventures that turn a profit. This change in trustee is limiting the number of costs incurred by the debtor despite the belief by critics that it is less cost-efficient.

Critics have spoken poorly of businessmen being in the trustee position due to the cost of the trustee being shifted into debtor costs instead of government costs. In Subchapter V, the trustee is paid through the plan of reorganization and is paid on an hourly basis due to their expertise being used. There was the concern of trustees purposely stacking their time to gain more profit and increasing the amount owed by the debtor. This is different from the structure of a typical Chapter 11 business bankruptcy that has the United States Trustee paid by the government. However, one must recognize that the value of their expertise is worth the cost in the long run with other provisions being in place to account for the added cost. Such as the time limitation to file the plan within 90 days of the order for relief according to 11 U.S. Code §1189.  In addition, a business can obtain court approval of a plan without the agreement of any creditors. This is different from a normal Chapter 11 bankruptcy that allows a relatively open ended time to file a plan.  A Chapter 11 also requires at least one creditor to agree to go along with the plan. This difference makes the timeline exponentially longer for normal Chapter 11 cases. Therefore, this limits the efficiency of small business bankruptcies and allows for individuals to be stuck in bankruptcy for several years incurring attorney costs. The trustee is supposed to be in a mediator role that brokers deals to allow for a plan to be filed and the bankruptcy to come to an end. Therefore, a businessman is better equipped to broker a deal with creditors that still benefits the debtor. 

Trustees that are businessmen willing to negotiate and use their background knowledge from their career to find innovative solutions that make all parties feel heard. Small businesses are looking into filing Subchapter V bankruptcies due to the advantages that favor their needs with the help of the trustee’s expertise and helpful attitude that creates a collaborative environment and less of a hostile environment. This creates more efficiency and expanded access to more individuals due to the trustee, the face-past structure, and a decrease in costs. As well, it helps for a plan of reorganization to be more likely to succeed with the help of the trustee that makes recommendations that strategically solve a business’s pre-existing fallacies. Subchapter V of the bankruptcy code is going to be a great help and more attractive option for small businesses that may need to file for bankruptcy in the upcoming years.