Do You Qualify for Subchapter V Bankruptcy? Eligibility Rules for New Jersey and Pennsylvania Small Businesses

If you run a small business in Pennsylvania or New Jersey and the math has stopped working, you have probably heard that Subchapter V might help. The next question is the one this article answers: does your business qualify to file?

Subchapter V is a streamlined version of Chapter 11 bankruptcy written specifically for small businesses. It lets the owner keep operating, propose a repayment plan, and clear or restructure debt over three to five years. It is faster and cheaper than a regular Chapter 11, which is why it matters for a pizza shop, hardware store, towing company, construction outfit, or any other small business that cannot absorb the cost of a full Chapter 11 case.

Not every business is eligible, though. There is a debt cap, a business-debt requirement, and a short list of exclusions. Here is how to figure out where your business sits.

What Subchapter V Is, in One Paragraph

Subchapter V is a subchapter of Chapter 11 of the United States Bankruptcy Code, codified at 11 U.S.C. §§ 1181 through 1195. Congress added it through the Small Business Reorganization Act of 2019, and it took effect in February 2020. The idea was to give smaller companies a real path through Chapter 11 without the cost and procedural weight of a traditional case. The core reorganization tools still apply (the automatic stay that pauses collections, cramdown of secured debt at collateral value, the ability to confirm a plan over creditor objection), but the process is shorter and stripped of the most expensive moving parts.

The Subchapter V Debt Limit

The first eligibility gate is the debt limit. To qualify for Subchapter V, your total non-contingent, liquidated debts (secured plus unsecured) cannot exceed $3,424,000 as of April 1, 2025. That figure adjusts every three years under § 104(b) of the Bankruptcy Code to track inflation, which is why the number in the shortcode above is what controls, not whatever number you might find in an older article online.

The debt limit has moved. It started near $2.7 million in 2020, jumped to $7.5 million during the COVID response, and has shifted again since. Confirm the current number with counsel before you assume your business is in or out.

What Counts Toward the Debt Limit (and What Doesn’t)

The debt limit looks at non-contingent, liquidated debts. That is bankruptcy shorthand for debts you currently owe in a fixed dollar amount. A current SBA loan balance counts. A merchant cash advance (MCA) balance counts. Past-due rent counts. A judgment counts. Outstanding tax debt counts. Credit card balances and lines of credit count.

Two categories drop out of the count:

• Insider debt. The cap ignores debt you owe to owners, family members, or affiliated entities.
• Contingent or unliquidated debt. Lawsuits without a judgment, indemnification obligations, and similar uncertain debts may not count, depending on how the court treats them on the facts. A personal guarantee the lender has not yet called typically stays contingent until the lender demands payment, which can keep that exposure outside the cap until it crystallizes.

The petition date controls the snapshot. A business close to the limit can occasionally find room by paying down a small creditor or by reclassifying insider debt, but you have to handle those moves correctly and disclose them honestly.

At Least Half Your Debt Must Come from Business Activity

The second gate is the 50% test. At least half of your debt has to come from commercial or business activities, not consumer obligations. This rule is more forgiving than it sounds, because most small business owners have a debt stack where the business side dominates: SBA loans (often personally guaranteed), commercial lines of credit, equipment leases, MCA balances, vendor debt, and commercial lease arrears.

A personal mortgage and consumer credit cards in your name can sit on the other side of the line. As long as the business debt is at least half the total, you clear the 50% test.

This is one of the reasons Subchapter V is so useful for owners who have personally guaranteed business debt and cannot qualify for Chapter 7 (because of the means test) or Chapter 13 (because of its own, much lower debt limits). The same debt that has been haunting them at the personal level becomes the thing that opens the Subchapter V door.

Who Cannot File Subchapter V

A short list of debtors cannot use Subchapter V even if they meet the debt limit and the 50% rule.

• Single asset real estate (SAR) entities. If the business is essentially a single property or project that generates substantially all of your gross income (a rental building, a single development project), Subchapter V will not work. The statute carves out family farmers and residential complexes with fewer than four units, so those debtors may still qualify.
• Publicly traded companies and their affiliates. Subchapter V serves closely held businesses.

If one of those exclusions applies, the company may still be eligible for a regular Chapter 11 case, though not the streamlined Subchapter V track.

Individuals Can File Subchapter V, Not Only Companies

One eligibility point that catches owners by surprise: Subchapter V works for more than LLCs and corporations. An individual engaged in commercial or business activity who meets the debt limit and the 50% test can file Subchapter V personally.

This matters for owners who personally guaranteed business debt. When the SBA accelerates a loan and demands payment from both the company and the owner, the owner faces the same debt the business does. If Chapter 7 (means test) or Chapter 13 (low debt limits) is off the table, individual Subchapter V is often the only path through. We cover that mechanic in our article on what happens to SBA loans in Subchapter V. Courts have split on whether you have to be actively operating at filing or whether winding up a failed business still qualifies under § 1182; most judges allow the wind-up cases.

How the Subchapter V Election Works

Subchapter V is technically a Chapter 11 case with a box checked at the top of the petition. You elect Subchapter V on the petition itself, and Federal Rule of Bankruptcy Procedure 1020 gives a 14-day window after the order for relief to make or amend the election. Once the election sticks, the streamlined rules kick in: a 90-day deadline for the reorganization plan, no creditors’ committee in most cases, no quarterly U.S. Trustee fees, a Subchapter V trustee whose job is to help the case move rather than displace management, and modified cramdown rules that let the court confirm a plan over creditor objection if it meets a fair and equitable standard. If a creditor challenges eligibility, the court resolves it. That is one reason to analyze eligibility before you file, not after.

How This Looks in New Jersey and Pennsylvania

Subchapter V cases for New Jersey businesses go to the U.S. Bankruptcy Court for the District of New Jersey. South Jersey and shore-county cases (Camden, Burlington, Gloucester, Atlantic, Cape May, Cumberland, Salem) generally land in the Camden vicinage, with some matters held at the Atlantic City courthouse. Ocean County matters fall under Trenton. Pennsylvania cases sit in the Eastern District out of Philadelphia (covering Philadelphia, Bucks, Chester, Delaware, and Montgomery counties), or the Middle or Western District depending on where the business operates. Each district has its own panel of standing Subchapter V trustees and judges who handle these cases regularly, and local familiarity can shape both timing and outcome.

Talk to a Bankruptcy Attorney Who Serves Small Business Owners in New Jersey and Pennsylvania

The Law Office of Mike Assad helps small business owners across New Jersey and Pennsylvania restructure debt and stay in business. Mike practices in both states and has represented business debtors and creditors in the U.S. Bankruptcy Court for the District of New Jersey and the Eastern, Middle, and Western Districts of Pennsylvania.

What working with the firm looks like:

• A free, confidential consultation with no obligation, and a straight answer on whether Subchapter V eligibility fits your situation.
• Fully virtual meetings over Zoom, so there is no need to come to an office.
• The same attorney on your case from the first call through the filing, and a live person whenever you call.

Call (609) 808-3300 or book your free, confidential consultation online. The firm has offices in Cherry Hill, New Jersey and Philadelphia, Pennsylvania. If it would help, you can share your business debt details before the call so we can hit the ground running.

Frequently Asked Questions

Do I need to be an LLC or corporation to file Subchapter V?
No. An individual engaged in commercial or business activity who meets the debt limit and the 50% test can file Subchapter V personally. This is the path many sole proprietors and personally-guaranteed owners use.

I personally guaranteed my SBA loan. Does that count toward the business-debt half?
For an individual Subchapter V filing, debt you took on to fund or operate the business generally counts as business debt, including a personally guaranteed SBA loan that capitalized or sustained the company. The analysis turns on the facts, so the use of proceeds matters.

Can I still file if I owe more than the Subchapter V debt limit?
You cannot use the streamlined Subchapter V track, but a regular Chapter 11 case may still be available. A regular Chapter 11 has no debt cap and uses the standard rules: a creditors’ committee, a disclosure statement, quarterly U.S. Trustee fees, and the absolute priority rule. We walk through the chapter choice in Subchapter V vs Chapter 7 vs Chapter 13 for small business.

Does Subchapter V work for a single-property real estate business?
Generally no. The statute excludes a single asset real estate entity. The same statute carves out family farmers and residential complexes with fewer than four units. An owner with several rental properties usually does not fit the single asset real estate definition and can often proceed.

Mike Assad

Founding attorney, admitted in Pennsylvania and New Jersey. Mike has guided individuals and businesses through bankruptcy across Pennsylvania and New Jersey.