COVID-19 shutdowns crippled many Arizona companies, with some going out of business permanently. Others are considering bankruptcy, but question whether they can afford the $40,000 to $75,000 that a Classic Chapter 11 often costs. Fortunately, they now have a better option that saves as much as 50% in legal fees.
In August, Arizona confirmed its first Subchapter V Chapter 11, a new form of bankruptcy the federal government created to streamline the Chapter 11 bankruptcy process. Debtors with less than $7.5 million in primarily business debt can restructure their debts into a payment they can afford and discharge significant unsecured debt.
In the Subchapter V 11, all that must be proven is that the Plan of Reorganization is “fair and equitable.” Although there are various tests for what that means for different types of creditors, that proof is much easier than the Classic 11 requirements.
Another unique aspect of a Subchapter V 11 is the appointment of an assistant, helper and negotiator called a “trustee.” The V trustee’s job is to help the debtor through the process, negotiate as needed with creditors and help make sure the debtor gets its plan confirmed as quickly as possible. A standard Subchapter V 11 plan is for three years, but can be shorter or longer depending upon the facts and circumstances of the case and negotiations with creditors.
If the debtor’s plan is “consensual” with the creditors, the debtors can achieve their discharge on the same date as the Court confirms the plan. Confirmation can occur within five months of the bankruptcy filing. Compared to the three- to five-year delay in a Chapter 13 or the extensive delay in a Classic 11, Subchapter V 11 gets companies and individuals back on their feet much faster.
D. Lamar Hawkins is an attorney with Guidant Law Firm in Tempe and chair of the Arizona Board of Legal Specialization’s Bankruptcy Law Advisory Commission.
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