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Companies and other organizations have successfully utilized Chapter 11 of the Bankruptcy Code for nearly 50 years. It’s no secret, however, that traditional Chapter 11 has its downsides. [i] For this reason, there has been a trend over at least the last two decades of organizations and their various constituents favoring, when feasible, alternatives to traditional Chapter 11, such as assignments for the benefit of creditors (ABCs), receiverships, and Article 9 sales. [ii] Even prepacks, used to force so-called LMEs [iii] upon dissenting minorities, and Subchapter V, though both technically species of Chapter 11, can be viewed as alternatives to traditional Chapter 11.
This trend has accelerated in the last few years, as traditional Chapter 11 remains too expensive, too slow, and often too unpredictable for many small and mid-sized businesses, while Chapter 11 alternatives continue to be used with great success, in increasingly varied circumstances and creative ways.
The legislative and judicial developments of 2025, as well as those now shaping the 2026 landscape, share a common theme: the modernization and standardization of alternatives to traditional Chapter 11. These themes were and will continue to be most pronounced in three ways: UABCA, UCRERA, and Subchapter V (each defined below). A bit more about each:
The Uniform Assignment for Benefit of Creditors Act
In October 2025, the Uniform Law Commission promulgated the Uniform Assignment for Benefit of Creditors Act (UABCA). [iv] ABCs have been used by faltering companies in many states for a long time before the modern Bankruptcy Code was legislated into existence in 1978. In other states, however, they are not used at all, often because such states have antiquated or underdeveloped state statutes governing them. [v]
UABCA aims to change that. If adopted widely, it will give ABCs something they have never had before: statutory uniformity. Among other things, UABCA:
- Permits judicial involvement without requiring routine court supervision, making it attractive to both states that historically supervise ABCs and those that do not.
- Codifies that an assignee is a fiduciary with duties of loyalty, to maximize value, and to efficiently administer the assets put in their charge.
- Grants the assignee lien-creditor status for personal property and bona-fide-purchaser status for real property, resolving long-standing ambiguity around priority over unperfected liens.
- Sets forth a mandatory claim process under which creditors must file proofs of claim within 90–210 days.
- Provides that filing a claim constitutes consent to court jurisdiction (if invoked) and assigns voidable-transaction claims exclusively to the assignee.
- Instructs courts to recognize assignments made under the law of another adopting state and limits forum shopping by clarifying that an assignee’s residence or principal place of business is not a basis for jurisdiction.
- Establishes a consistent waterfall: administrative costs, federal priority claims, certain wage claims, and then general unsecured creditors.
The Uniform Law Commission started earlier in terms of facilitating the uniformity of a key strategic alternative against distressed businesses when it promulgated the Uniform Commercial Real Estate Receivership Act (UCRERA).
UCRERA
UCRERA, which has already been enacted in 15 states plus DC, continues to fill long-standing gaps in state receivership law.
One of the most important things to understand about UCRERA is that its name is a serious misnomer. Although originally focused on commercial real property, several states have expanded UCRERA to permit operating-company receiverships. UCRERA’s provisions include the following:
- Unlike most general receivership statutes, UCRERA imposes an automatic stay as to actions seeking possession or enforcement against receivership property, with important exceptions, including perfection of interests.
- UCRERA diverges sharply from the Bankruptcy Code: a pre-appointment security agreement generally continues to attach to after-acquired property unless state law dictates otherwise.
- Receivers operating under UCRERA may sell assets outside the ordinary course, potentially free and clear of liens.
- With court approval, URCRERA permits receivers to assume or reject executory contracts, similar to (but not identical with) the bankruptcy framework.
Subchapter V of Chapter 11
Traditional Chapter 11 is powerful medicine. It can sometimes achieve results for a distressed company that simply are not achievable by any other means. Traditional Chapter 11 is also the remedy that most restructuring professionals know the most about. For this reason, to turn another phrase, traditional Chapter 11’s prevalence in the mind of restructuring professionals benefits from the ‘when you’re a hammer every problem is a nail’ phenomenon.
From a taxonomical perspective, Subchapter V of Chapter 11 is surely a type of Chapter 11. And most of Subchapter V’s mechanics, the case law by which it is interpreted, and its general practice are not that different from traditional Chapter 11. If we were discussing biological entities, we might suggest that they share 96% of the same DNA, a percentage we have selected nominally to illustrate a point, namely the same differential between humans and apes.
However, Subchapter V is so qualitatively different from traditional Chapter 11 that it is reasonably considered as an alternative to traditional Chapter 11. These qualitative differences, which include the elimination of the absolute priority rule, the near elimination of disclosure statements and creditors’ committees, and the existence of a Subchapter V trustee, all serve to make Subchapter V a far better alternative for certain distressed companies than traditional Chapter 11.
One of the most important things to understand about Subchapter V is that its ostensible debt limit is widely misunderstood. The debt limit to qualify for Subchapter V is based on the statutory ceiling for a ‘small business debtor.’ Since April 1, 2025, the threshold has been $3,424,000. But this threshold applies only to the debtor’s aggregate noncontingent, liquidated secured and unsecured debts to non-insiders. The terms ‘noncontingent,’ ‘liquidated,’ and ‘insider’ are not as clear-cut as they may appear on the surface. [vi]
Recall, Subchapter V went into effect only in February 2020. That makes it a kindergartner as compared to traditional Chapter 11, which turns 47 in 2026. Case law will continue to develop rapidly in 2026, as it did in 2025, and this case law will continue to shape Subchapter V’s development and use.
The Continued Vitality of Traditional Chapter 11
Taking a step back, nothing in this article should be read to suggest that traditional Chapter 11 is dead or dying. Quite to the contrary, it remains an excellent alternative for most larger organizations and many smaller ones. Moreover, its relevance in nearly all situations remains unquestioned because it is the alternative against which all other options are usually compared. [vii] Chapter 11 is not going anywhere, though we expect a continuing trend in the direction of more and more Chapter 11 cases being filed as prepackaged or under Subchapter V. [viii]
Note: This article is an advanced version of the “Highlights” section of the forthcoming 2026 edition of Strategic Alternatives for and Against Distressed Businesses, published annually by Thomson Reuters (Treatise). Most, if not all, of the issues referenced in this article are analyzed at length in the Treatise.
This article is subject to the disclaimers found here.
References
[i] See Charles J. Tabb, What’s Wrong With Chapter 11?, 71 Syracuse L. Rev. 557 (2021).
[ii] Friedland and Spiegel, Why Out-of-Court Restructurings Are on the Rise, DAILY BANKRUPTCY REVIEW, October 24, 2007, at 11; Friedland, Rise of the Alternatives –The Increasing Use of Strategic Alternatives to Chapter 11, BANKRUPTCY DATA’S 2019 YEARBOOK, ALMANAC & DIRECTORY, 29th Edition, at 300.
[iii] For more about liability management transactions (LMTs) (a/k/a liability management exercises (LMEs), see Friedland, A Bothersome Amphibology (DailyDAC, May 7, 2025).
[v] See Carly Landon, Note, Making Assignments for the Benefit of Creditors as Easy as A-B-C, 41 Fordham Urb. L.J. 1451, 1473 (2014) (“Common law ABCs are admittedly hard to summarize, because there are no comparable statutes and each state’s case law differs from other states’ case law.”).
[vi] Some debtors have successfully used Subchapter V to deal with companies saddled with tens or even hundreds of millions of dollars of contingent and unliquidated claims. E.g. In re Velsicol Chemical LLC (23 B 12544); In re Flix Brewhouse Texas V LLC (3:21-bk-30526) (both cases in which one of the authors of this Highlights section represented the debtor). See also Friedland, et al., Subchapter V of Chapter 11: A User’s Guide ).
[vii] Sprayregen, Friedland, Higgins, Chapter 11: Not Perfect, But Better Than the Alternatives, JOURNAL OF BANKRUPTCY LAW AND PRACTICE, Vol. 14, No. 6 (2005) at 3.
[viii] See Daniel J. Bussel & Austin Damiani, Chapter 11 at the School of Subchapter V: Part I, 44 Bankr. L. Ltr. 6 (June 2024) (suggesting that Subchapter V may enhance Chapter 11 in various ways).
