What to Know About Chapter 5 Bankruptcy in New York

Small businesses have struggled during COVID-19. Luckily, there are a number of different options for small businesses facing financial struggles. One of these options may be Chapter 5 bankruptcy. Read on to learn more about filing for Chapter 5 bankruptcy in New York.

What is Chapter 5 Bankruptcy?

The Small Business Reorganization Act (SBRA) recently added Subchapter 5 to Chapter 11. This is a faster, streamlined process for small businesses when it comes to filing for bankruptcy. Chapter 11 bankruptcy allows business reorganization and is often most beneficial to large corporations. As a result, Chapter 5 bankruptcy was created, applicable only to small businesses.

Benefits of Chapter 5 Bankruptcy

A Chapter 5 bankruptcy is available for businesses that are considered “small business debtors.” This means that their total unsecured debts are under a certain threshold. Chapter 5 works to streamline the reorganization process in some of the following ways:

  1. Debtor-in-possession rules will be followed, allowing a business owner to remain in possession of business assets and continue operating their business. However, rather than having the debtor serve as trustee, a trustee will be appointed. This individual will assist in the reorganization process and disburse payments to creditors.
  2. A committee of creditors will not be appointed unless the bankruptcy court believes there is an especially good reason to do so. This inevitably helps reduce costs for the debtor by eliminating the fees and expenses related to the professionals who serve on this committee.
  3. The debtor will submit a reorganization plan within 90 days of filing a petition for bankruptcy. It is important to note that creditors will not be able to submit their own plans. The debtor’s plan will detail how debts will be paid over a period of three to five years.
  4. Debtors will generally not be required to file a complete disclosure statement as they would be required to do in a Chapter 11 bankruptcy. Instead, the reorganization plan will include some of the information that would be addressed in a disclosure statement.

If you are a small business owner, Chapter 5 bankruptcy may be your best option. Contact our firm today for more information about business bankruptcy and to find out more about how we can help you.


Michael D. Pinsky, P.C. represents clients in bankruptcy actions and related matters. Please call 845-394-2616 or contact the firm online to schedule a consultation.

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