About one in three businesses in Fresno is family-owned, one of the highest concentrations in the country. Many of those businesses—farms, trucking companies, restaurants, trade contractors—were built over years or decades by people who can’t imagine closing the doors. When debt starts piling up, the instinct is often to assume bankruptcy means exactly that: shutting down and walking away.
That instinct is wrong, and the law has changed in ways that make it more wrong than ever. Subchapter V of Chapter 11 was designed specifically to give small business owners a path to restructure what they owe while keeping the business running and staying in control. At Fear Waddell, P.C., our attorneys Peter Fear and Gabe Waddell are Certified Bankruptcy Specialists recognized by the State Bar of California. That designation requires passing rigorous testing and handling a substantial volume of bankruptcy cases. We work with Fresno business owners facing exactly these situations, and we’ve represented Subchapter V debtors in the local bankruptcy court here in the Eastern District.
Here’s what Subchapter V actually does, who qualifies today, and why the eligibility rules are shifting right now in ways that affect your timing.
What Subchapter V Changes for Small Business Owners
Congress added Subchapter V to Chapter 11 through the Small Business Reorganization Act (SBRA), which took effect February 19, 2020. The goal was straightforward: standard Chapter 11 was too expensive and too slow for small businesses, so the SBRA created a streamlined track with lower costs, tighter deadlines, and fewer procedural requirements.
The single most important change involves a doctrine called the absolute priority rule. In a standard Chapter 11, that rule requires unsecured creditors to be paid in full before a business owner can retain any equity in the company. For most small business owners, that made reorganization nearly impossible. There simply wasn’t enough cash to satisfy every creditor completely. Subchapter V eliminates that requirement. An owner can keep their equity as long as the reorganization plan commits the business’s projected disposable income (income above what’s needed for reasonable operating expenses) to paying creditors over three to five years.
Not every business qualifies. A debtor must be actively engaged in commercial or business activity. Publicly traded companies and single-asset real estate entities can’t elect Subchapter V. For most closely held Fresno businesses, those exclusions don’t apply.
Does Your Business Meet the Current Debt Limit?
Eligibility for Subchapter V turns heavily on how much debt a business carries. As of April 1, 2025, the limit is $3,424,000 in aggregate noncontingent, liquidated secured and unsecured debt. “Noncontingent” means debts that are already fixed and owed, not obligations that might arise in the future. “Liquidated” means the amount is determinable, not disputed.
Two additional rules shape how that number is calculated:
- The 50 percent commercial-activity test: At least half of the total debt must have come from the owner’s commercial or business activity, not from personal obligations unrelated to the business.
- Insider and affiliate debt is excluded: Debt owed to related parties, family members, related businesses, or insiders doesn’t count toward the limit.
We’ve represented Subchapter V debtors in the Fresno Division of the U.S. Bankruptcy Court for the Eastern District of California, including an agricultural business involving farming and trucking operations. That court sits in the Robert E. Coyle United States Courthouse at 2500 Tulare Street. Understanding how the local court handles these cases (from scheduling to trustee practice) is part of what we bring to this work.
Why the Debt Limit Might Not Stay Where It Is
The $3,424,000 figure has only been in place since April 2025, and it may not hold for long. The limit has moved several times since Subchapter V was created, which matters for business owners who are on the edge of eligibility or trying to time a filing carefully.
Here’s how it has shifted:
- March 2020 through June 2024: The CARES Act raised the Subchapter V debt limit to $7.5 million, and that elevated limit (extended multiple times by subsequent legislation) gave far more small businesses access to the streamlined process.
- June 21, 2024: That increase expired, and the limit reverted to a lower, inflation-adjusted figure.
- April 1, 2025: A routine inflation adjustment set the current threshold at $3,424,000.
On August 3, 2026, the U.S. Senate unanimously passed S. 3977, the Bankruptcy Threshold Adjustment Act of 2026, which would permanently restore the limit to $7.5 million. A companion bill, H.R. 7730, passed out of the House Judiciary Committee in March 2026 but hadn’t yet cleared the full House as of this writing, and the measure still needs the President’s signature to become law. A business owner carrying between $3.4 million and $7.5 million in qualifying debt can’t use Subchapter V today, but could if the legislation passes.
What Happens After You File: The Subchapter V Timeline
One of the most meaningful differences between Subchapter V and standard Chapter 11 is the pace. The process follows a compressed, court-supervised schedule designed to get a business to a confirmed plan within months rather than years.
Automatic Stay & Status Conference
The moment a Subchapter V petition is filed, an automatic stay takes effect, immediately halting collection actions, lawsuits, foreclosures, and repossession efforts. Within 60 days of filing, the court holds a status conference to assess whether the case is moving toward a consensual plan (one that creditors agree to).
The Reorganization Plan
Only the debtor may propose a reorganization plan in Subchapter V, and it must be filed within 90 days of the petition date. That exclusivity is a significant protection: creditors can’t propose competing plans designed to strip away ownership.
The Subchapter V Trustee
Unlike a Chapter 7 trustee who takes control of assets for liquidation, a Subchapter V trustee is appointed to facilitate negotiations and help the parties reach a consensual plan. The trustee doesn’t run the business or displace the owner. The owner remains in possession and in control throughout.
Deciding Whether Subchapter V Fits Your Business
Subchapter V works well for a specific situation: a viable business that has accumulated debt it can’t service under current terms but can generate enough income to fund a three-to-five-year repayment plan. It’s not a tool for businesses with no realistic path to revenue, and it’s not the only option. For some Fresno business owners, Chapter 7 or Chapter 13 may be a better fit depending on how the debt is structured and what the business owner is trying to accomplish.
Getting the right answer requires more than running a number against the debt limit. The composition of the debt, whether it qualifies as commercial, how insider obligations are treated, and how the local court has approached similar cases all affect what’s possible. Because the eligibility rules are actively shifting in Congress, a current and accurate read on where your debt load stands matters more than a general estimate. Fear Waddell, P.C. offers free consultations for business owners who want to understand their options before committing to a course of action. Reach us at (559) 418-3022.