Small business bankruptcies are on the rise. Subchapter V filings — which most small businesses these days are using to reorganize a floundering business — have outpaced filings from 2022, CNBC.com reported. There were 1,659 subchapter V filings through October, compared with 1,553 for the full year earlier, according to the American Bankruptcy Institute. Businesses may have several options when it comes to filing for bankruptcy, and the right course to charter will depend on the business, the scope of its troubles, the owner’s intentions for continuing on in business and other factors. Subchapter V tends to work best for businesses with debts that are mostly straightforward. Using this option, eligible businesses can spread debt repayment over three to five years, a relatively lenient timeline. But there are restrictions. For instance, businesses can’t exceed certain aggregate debt levels, currently $7.5 million. Subchapter V is quicker and less expensive than a traditional chapter 11, but there are still costs involved, said Megan Murray, a founding shareholder of Underwood Murray, a law firm that focuses on commercial bankruptcy. It’s not like you throw your business into bankruptcy and avoid legal and administrative fees. “You can’t just walk away,” she said. Donald Swanson, a shareholder with the law firm Koley Jessen, said he’s helped hundreds of businesses work through financial challenges, but only put dozens in bankruptcy because there can be better ways to help owners recover. “Once you file for bankruptcy, you are kind of playing your last card,” Swanson said.
