Subchapter V for Closed Businesses: The Eligibility Lifeline

You closed the business. The personal guarantees did not close with it. Here is the recent legal shift that opens a path to restructure that debt under Subchapter V, even after the doors are locked.

For more than three years, courts disagreed on whether a former business owner whose company had wound down could still qualify for the streamlined Subchapter V small business reorganization track. The strict reading required active operations on the petition date, which left thousands of owners with personal guarantees on closed-business debts locked out of the chapter that was specifically designed for them. The In re Stevens decision and the line of cases following it adopted a broader totality-of-the-circumstances test that recognizes managing personal guarantees, defending creditor lawsuits, collecting accounts receivable, and substantial wind-down work as continuing commercial activities for purposes of Subchapter V eligibility.

This episode walks through the doctrinal shift, the practical eligibility tests that still apply, and the four-step action plan for owners considering the path forward.

CHAPTERS
0:00 The nightmare scenario, personal guarantees on a closed business
1:30 The old strict reading trap, why the active-operations test locked owners out
4:30 The Stevens case, the totality-of-the-circumstances test
7:45 What counts as commercial activity under the new standard
11:00 The honest limits, debt cap, debt ratio, feasibility, disposable income
14:30 The four-step action plan, math, documentation, counsel, timing
18:00 Closing thoughts

ABOUT THE AUTHOR
Phillip Zagotti, JD/CPA, is the founder of North Star Law Firm in Houston, Texas. He represents small business owners in tax controversy, bankruptcy, and forensic accounting matters, with a particular focus on the intersection of tax debt and small business reorganization. He is admitted to practice before the U.S. Tax Court, the U.S. Bankruptcy Court for the Southern District of Texas, the U.S. District Court for the Southern District of Texas, the U.S. District Court for the Central District of California, the U.S. Bankruptcy Court for the Central District of California, and the State Bar of California. He holds a Texas CPA license.

Phillip has co-authored two books written specifically for non-specialists navigating complex financial and legal obligations:

Taxed: A Taxpayer's Guide to Tax Defense and Resolution
Trusted: The Essential Guide for Trustees

LEARN MORE
North Star Law Firm: https://htx-legal.net
Subchapter V service page: https://htx-legal.net/subchapter-v-small-business-reorganization-houston
Phone: (832) 384-4526
Office: 11740 Katy Fwy, Suite 1700, Houston, TX 77079

AI DISCLOSURE
This video was produced using AI-assisted audio synthesis through Google's NotebookLM platform. The substantive content, including all legal analysis, case discussion, and practical guidance, was researched and authored by Phillip Zagotti, JD/CPA, founder of North Star Law Firm. The audio narration is generated by AI hosts working from Phillip's source material.

LEGAL DISCLAIMER
This video is provided for general informational purposes only and does not constitute legal, tax, or financial advice. The information presented does not establish an attorney-client relationship between the viewer and Phillip Zagotti or North Star Law Firm. Bankruptcy and tax law are dynamic, fact-specific, and jurisdiction-dependent. Statutes, case law, and regulatory positions referenced in this video may have changed since the recording date. Anyone facing a legal or financial decision should consult with a qualified attorney or certified public accountant licensed in their jurisdiction before acting on information presented here. Phillip Zagotti is admitted to practice law in California and before various federal courts. He is licensed as a CPA in Texas. He is not admitted to the State Bar of Texas.

#SubchapterV #BankruptcyAttorney #SmallBusinessOwner #PersonalGuarantee #BusinessReorganization #HoustonBankruptcy #InReStevens

Видео Subchapter V for Closed Businesses: The Eligibility Lifeline канала North Star Law