Key Takeaways

• The court filing fee is $1,738, the same as any Chapter 11 case.
• There are no quarterly U.S. Trustee fees in a Subchapter V case.
• A Subchapter V trustee is appointed in every case and is paid from the estate, with court approval.
• There is no creditors’ committee and no disclosure statement unless the court orders one, which removes two major costs of traditional Chapter 11.
• Attorney fees are subject to court approval and can often be paid over time.

Court fees

The fee to file a Chapter 11 petition, including a Subchapter V case, is $1,738. That is the $1,167 filing fee set by 28 U.S.C. § 1930(a)(3) plus the $571 administrative fee.

In a traditional Chapter 11 case, the debtor also pays a fee to the U.S. Trustee every quarter, based on how much money the business pays out. Those quarterly fees do not apply in Subchapter V (28 U.S.C. § 1930(a)(6)(A)). Over a case that lasts a year or more, that difference alone can be thousands of dollars.

The Subchapter V trustee

A trustee is appointed in every Subchapter V case. The trustee does not run the business. The job is to monitor the case, review the debtor’s finances and help the debtor and creditors reach an agreed plan.

The trustee is paid by the debtor’s estate, and the fees must be approved by the court as reasonable. The cost depends on how much work the case requires. A case with clean books, timely reports and creditors who negotiate will cost less than one with disputes at every step.

Attorney fees

The debtor’s attorney must be approved by the court, and the fees are reviewed and approved by the court as well. Most cases begin with a retainer paid before filing. Fees earned after filing are paid only after a fee application is approved.

Subchapter V has a feature that helps here. When a plan is confirmed without creditor consent, administrative expenses, including professional fees, may be paid through the plan over time, and do not all have to be paid in full on the plan’s effective date (11 U.S.C. § 1191(e)).

Costs Subchapter V avoids

• Creditors’ committee. In a traditional Chapter 11 case, a committee of unsecured creditors may hire its own lawyers and advisors at the debtor’s expense. Subchapter V has no committee unless the court orders one for cause.
• Disclosure statement. A traditional case usually requires a detailed disclosure statement, approved at its own hearing, before creditors can vote. Subchapter V does not, unless the court orders one.
• Competing plans. Only the debtor may file a plan, so there is no litigation over a creditor’s plan.
• Quarterly U.S. Trustee fees. None.

Costs to plan for

• Bookkeeping and monthly reports. The debtor must file regular financial reports, so the books need to be current and accurate.
• An accountant, appraiser or other professional, if the case needs one. Each must be approved by the court.
• Insurance, taxes and payroll, which must be kept current after filing.
• Payments required early in the case, such as adequate protection payments to a lender with a lien on equipment, inventory or receivables.

How to keep the cost down

• Bring organized records: 12 months of profit and loss statements, bank statements, tax returns, a list of every creditor and copies of loan documents and guarantees.
• File before the cash is gone. A business that files with some cash on hand has more options than one that files after a levy.
• Decide early what the business needs to keep and what it can give up.
• Talk to the main creditors. An agreed plan is confirmed faster and costs less than a contested one.

Frequently Asked Questions

Can a small business afford Chapter 11?

Many can under Subchapter V. Congress created it because traditional Chapter 11 cost more than most small businesses could pay. The total depends on the size of the business, the condition of its records and how much creditors contest.

Who pays the Subchapter V trustee?

The debtor’s estate pays the trustee, in an amount the court approves as reasonable. In many cases the trustee’s fees are paid through the plan.

Do I have to pay all of the attorney fees before filing?

No. A retainer is paid before filing. Fees earned during the case are paid after court approval, and in some cases they can be paid over time through the plan.

Is Subchapter V cheaper than closing the business?

It depends on what the business is worth as a going concern. If the business can produce income after its debt is restructured, reorganizing usually preserves more for the owner than closing. If it cannot, a planned shutdown may cost less.

Get a fee quote based on your facts

Send a description of the business, a list of its debts and its most recent financial statements to msiddons@siddonslaw.com. We will review them and tell you what a Subchapter V case would cost and whether it makes sense.