News Flash: You May File for Bankruptcy and Keep Your Business


With highly valued BigLaw experience representing borrowers and lenders in some of the most hotly contested cases in the country inside and outside of bankruptcy court, Joe Pack, a corporate restructuring and bankruptcy attorney in New York and Florida and a licensed Certified Public Accountant, is uniquely qualified to help guide businesses through Subchapter V of the Bankruptcy Code. In this article, he discusses how Subchapter V works and why restaurants and bars should consider a Subchapter V bankruptcy, even if they are managing to stay open during this difficult period.

News Flash: You May File for Bankruptcy and Keep Your Business

Contingency Plan Now So You Can Have Your Cake and Eat It Too

By: Joseph Pack, Founder and Managing Partner of Pack Law

Capital raised: Check.  Kitchen built: Check.  Food’s great, reviews are good: Check. And management has finallymastered the tactful shut down to the unverified influencer, self-proclaimed “foodie” wanting a free meal without inciting a bad review online. Then: BOOM! COVID hits. Kitchen on fire.

Without a doubt, you don’t want to lose everything you’ve worked so hard to build. So, what to do? The answer may come as a surprise: filing for corporate bankruptcy.

Although any decent bankruptcy lawyer should pull out all stops to avoid a bankruptcy filing, it is important to note that a commercial bankruptcy filing is notraising a white flag. It is anything but! Fact is, a commercial bankruptcy is a smart strategy ubiquitously employed by highly sophisticated boards and executives which enables the business to emerge financially stronger, leaner and set on a path for success.  In the past year alone, chapter 11 filings have included California Pizza Kitchen, Ruby Tuesday, Sizzler, Friendly’s, Bar Louie, and Le Pain Quotidien.

Sadly, because of the high expense of administering a bankruptcy that “reorganized” a company and didn’t merely liquidate it, small businesses have historically been relegated to filing for a chapter 7 liquidation, shuttering the business.  To add insult to injury, an appointed chapter 7 trustee could come in and sue owners and directors for personal liability for any improper acts engaged in prior to the filing (e.g., cash distributions during insolvency).

  • Enter Brand New Subchapter V of the Bankruptcy Code.

In response to what many attorneys, judges and legislators viewed as an unfair barrier to entry for a chapter 11 restructuring — mainly, the expense — the Small Business Reorganization Act of 2019 created Subchapter V of Chapter 11 of the Bankruptcy Code.  The CARES Act expanded access to all companies with less than $7.5 million in debt. Asset value is not part of the equation. The law applies to individuals too if their debts are mainly business related (e.g., personal guarantees on business debt).

In Subchapter V, a business owner may keep the business, hold on to its equity and the assets in the business and wipe out debt by: (1) developing a payment plan from disposable income in the three-year to five-year period following the case to pay down debt (yes, after management salaries are paid); and (2) demonstrating that the payment plan puts creditors in a better financial position than a hypothetical chapter 7 liquidation.

Yes, if you just promise to pay what you can, you can wipe out the debt.  Does this mean that if after paying all the bills going forward, if a bar or restaurant has $20 left over, that’s the payment for the payment plan?  In short, yes.  It’s less difficult to comprehend if the alternative is liquidation, or another shuttered business — everyone hurts, employees, the business owner, and the neighborhood.  Remember, legislators want businesses to survive, if they can’t flourish.

In a traditional chapter 11 proceeding, this could not be the case because unless creditors receive 100 cents on the dollar for what they’re owed, equity must be canceled. For a closely held LLC, that includes membership interests in the LLC.

In chapter 11— and therefore, also in Subchapter V — the owner of the business stays in control, and management continues to run day-to-day operations. From a patron’s point of view, everything looks like business as usual.

  • The “Sub V Plan”

Unlike a traditional chapter 11 proceeding which, if contested, could last several months, the policy behind Subchapter V emphasizes a speedy rehabilitation of the company.  Therefore, from the date of commencement of the case, the company in bankruptcy (referred to as the “debtor”) in a Subchapter V case has a 90-day deadline to file a “plan of reorganization” (aka: a plan).

The plan can be prepared in a matter of days, or even the first day of the case for that matter, with proper planning.  A “Sub V plan” is a relatively simple document that includes (a) a summarized history of the business, (b) financial projections for ongoing operations and (c) a liquidation analysis (what creditors would likely receive in a hypothetical chapter 7 liquidation, which usually is zero).

Whereas traditional chapter 11 requires some level of creditor consent, Subchapter V does not.  While creditor consensus is always better, the Sub V plan lives and dies on the financial projections.

  • A Real-Life, High Level Example

By way of a very simple example (facts and circumstances are different in each case), let’s say a restaurant has two locations, each owned in a separate LLC. Location 1 is in an area where indoor dining is prohibited, the location has closed, and liabilities are mounting and have reached $1 million.  Location 2, on the other hand, is operating, doing well, but unfortunately has guaranteed the debt on Location 1.  Location 2 is liable for the $1 million if Location 1 cannot pay.

Location 1 and Location 2 each file for Subchapter V.  Through the proposed plan, perhaps the owner decides that Location 1 should close, it has $0 of projected income and can’t pay any debt.  Location 2 has $50,000 of projected discretionary and disposable annual income for the next three years based on current performance and reasonable assumptions.  The Subchapter V Plan includes a payment plan at $50,000 per year for three years. Location 1’s $1 million liability: gone. Location 2’s guarantee on the $1 million of liabilities after the $150,000 is paid at the end of the payment plan: gone. Even if the creditors kick, scream and object.

To an experienced restructuring professional, a formidable war chest is available – as long as you don’t wait until the very last second to seek advice. Based on my experience, here is a high-level checklist for how to prepare.  In other words, the mise en place:

  • First, get a financial snapshot in focus. Develop a balance sheet, listing all assets and liabilities, including those that are contingent (i.e., what may become a liability down the road) and determining what equity (if any) is left for owners/equity holders. A determination of the company’s financial “runway” based on current expenses is a critical measurement.


  • Second, take inventory of contracts and agreements.Which contracts are critical for the business to continue operations?  What constitutes an “Event of Default” under those contracts?  Does “force majeure” apply?  Force majeure clauses are included in many commercial contracts, including commercial leases, and set forth the very specific circumstances under which a party may terminate the agreement or fail to perform without liability due to the occurrence of an unforeseen event.
  • Third, assess your realistic outlook. Is the problem truly the pandemic?  Or did the pandemic merely highlight the struggles the business was facing long before COVID’s arrival?  Is there an operational plan that can be implemented to lower costs while salvaging the competitive advantage of the bar or restaurant?  Is the brand name (and the IP) worth saving (or selling)?

The point is, when you think you’re out of options, you’re not. There’s no doubt that an untold number of food and beverage businesses are facing their toughest days. However, with proper planning and the right team, small- to mid-size business owners can have access to the same smart strategies deployed by America’s largest companies and establish a solid platform guaranteeing future success.



Joseph Pack, a New York and Florida attorney and Florida Certified Public Accountant, is the founder of Pack Law, a Miami-based law firm specializing in the representation of debtors and creditors in business restructuring and bankruptcy including Chapter 11 and Subchapter V. He may be reached at

The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials referenced are for general informational purposes only. No reader should act or refrain from acting on the basis of information contained herein without first seeking legal advice from counsel in the relevant jurisdiction.