Chapter 7 vs Subchapter V
Which Path Is Right for Your Florida Business?
By Juan C. Burgos, Esq. | Florida Bar #84056 | Bankruptcy Attorney, Orlando FL
TL;DR: Chapter 7 liquidates the business — a trustee sells off non-exempt assets and the business closes. If you're a corporation or LLC, Chapter 7 gives the entity no discharge; it just ceases to exist. If you're a sole proprietor, your personal Chapter 7 discharges business debts too, giving you a personal fresh start. Subchapter V does the opposite: it keeps the business open, restructures the debt into a 3-to-5-year plan, and lets you keep ownership. The real question isn't "which bankruptcy chapter" — it's "do I want to save this business, or is it time to close it?"
If you're a Florida business owner searching this comparison, you're probably not choosing between two similar options. You're actually answering a bigger question first: is this business worth saving? Chapter 7 and Subchapter V aren't two flavors of the same thing — they're opposite answers to that question, and picking the wrong one wastes time and money you don't have to spare.
What Actually Happens in Chapter 7 (For a Business)
Chapter 7 is liquidation. A trustee takes control of the business's non-exempt assets, sells them, and pays creditors according to the priority rules in the Bankruptcy Code. The business stops operating — that part is the same regardless of entity type. What happens to you personally afterward depends heavily on your business structure.
If You're a Corporation or LLC
The entity itself does not receive a discharge — only individuals get discharges under the Bankruptcy Code. Once assets are liquidated and distributed, the corporate shell simply ceases to exist. If you personally guaranteed any business loans, those guarantees survive the case and can still be collected from you personally.
If You're a Sole Proprietor
There's no legal separation between you and the business, so a personal Chapter 7 filing covers business debts the same way it covers personal debts. You can receive a discharge, the business closes, and you get a genuine personal fresh start.
What Actually Happens in Subchapter V
Subchapter V is a fast-track form of Chapter 11 built specifically for small businesses with $3,424,000 or less in qualifying debt (the limit effective since April 1, 2025). Instead of liquidating, you keep operating as "debtor in possession," propose a repayment plan based on your actual projected income, and the court can confirm that plan over creditor objections — no majority creditor vote required. There's no creditors' committee in most cases, no quarterly U.S. Trustee fees, and a strict 90-day deadline to file your plan, which keeps the case moving instead of dragging on for years.
For the full breakdown of eligibility, process, and timeline, see our complete guide: Subchapter V Bankruptcy Explained.
The Decision Framework
Ask yourself one question: if the old debt disappeared today, would this business make money?
Signs Chapter 7 Is the Honest Answer
- The business model itself isn't working — it's not just a debt problem
- You're a corporation/LLC ready to close it
- You're a sole proprietor drowning in both business and personal debt
- You don't have the revenue to fund a repayment plan
Signs Subchapter V Is the Honest Answer
- Revenue is solid, but legacy debt is strangling it
- You have $3,424,000 or less in qualifying business debt
- At least half your debt is commercial in origin
- You want to keep operating and keep ownership
Where the Means Test Fits In
If you're a sole proprietor weighing a personal Chapter 7 filing, Florida's means test determines whether you qualify based on your household income. Our Florida Means Test Calculator gives you a fast, free read on where you stand before you commit to a path.
Frequently Asked Questions
Does my corporation get a fresh start after Chapter 7?
No. Only individuals receive discharges. A corporation or LLC that files Chapter 7 liquidates and ceases to exist — there's no debt discharge for the entity itself.
Can I keep my business open if I file Chapter 7?
No. Chapter 7 is liquidation — the business stops operating and its non-exempt assets are sold to pay creditors. If you want to keep the business open, Subchapter V is the reorganization option.
I personally guaranteed a business loan — does Chapter 7 protect me?
A corporate Chapter 7 filing does not erase your personal guarantee. That debt can still be collected from you individually unless you separately address it in a personal bankruptcy filing.
What if my business debt is over the Subchapter V limit?
You'd fall back to a traditional Chapter 11 reorganization, which follows the same "keep operating and restructure" idea but without Subchapter V's cost and timeline advantages.
Is Subchapter V only for incorporated businesses?
No. Sole proprietors and individual guarantors can qualify too, as long as at least half their debt is commercial in origin.
Not Sure Which Path Fits Your Business?
Get a free, confidential consultation — English or Spanish.
This article is for general educational purposes and does not constitute legal advice or create an attorney-client relationship. Attorney Juan C. Burgos is a federally designated debt relief agency helping families and businesses file for relief under the United States Bankruptcy Code.
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