Untangling Bankruptcy’s Most Complex Web: Chapter 11 Rule 1111(b) and Subchapter V

The United States Code Section 1111(b) provides an equitable remedy to debt restructuring for both debtors and creditors in Chapter 11 bankruptcy by allowing the debtor to retain their income-producing assets and repay their creditor(s) through a mutually approved plan. However, section 1111(b) is difficult for courts to apply due to its complex nature, and infrequent application of the section has resulted in limited development of case law interpreting the section. Courts currently interpret 1111(b) elections in Chapter 11 Subchapter V cases to exclude interest accrual; this interpretation establishes an inequitable precedent whereby debtors’ procedural advantages bypass creditor protections during reorganization, granting debtors power far beyond what was contemplated by the Small Business Reorganization Act (“SBRA”). This Note will argue that Subchapter V Chapter 11 reorganization plans should limit Section 1111(b) elections to reduce costs to small business debtors in furtherance of the SBRA’s legislative intent. This proposal ensures Subchapter V cases maintain an equitable remedy for creditors while aligning with bankruptcy principals articulated in the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and SBRA.