Bankruptcy Subchapter V Debtor Eligibility

Bankruptcy Code requires that a Subchapter V debtor be “currently engaged in commercial or business activities at the time of filing in order to be eligible as small business debtor.” In this case, the debtor filed for bankruptcy without intentions to resume business operations in the same manner as before. Therefore, the U.S. Trustee claims that means the debtor was no longer “currently engaged” in their business activities. However, the Court ultimately decided that the term “engaged” is vague. In Bankruptcy law, in the case that a word is not specifically defined in the Code, it “must be construed liberally in favor of the debtor and strictly against the creditor.” The Court ultimately found the debtor to be eligible to proceed under Subchapter V of Chapter 11.

Bankruptcy Case Number: 20-27480

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