667 B.R. 428
Bankr. S.D.W. Va.2025Background
- Shawn and Suzanne Stevens filed for Chapter 11 bankruptcy and elected to proceed under Subchapter V as small business debtors.
- The Debtors previously owned and operated two businesses (Cambridge Development, LLC: former restaurant operator; Lesage Properties, LLC: real estate leasing), which had ceased operations years prior.
- As of the bankruptcy petition date, the Debtors owned a dissolved LLC (Lesage) which still held one asset: an apartment building sold the day after filing.
- The Debtors’ liabilities largely arose from their personal guarantees on business debts tied to these entities, which exceeded the value of their home.
- The U.S. Trustee objected to the Subchapter V election, arguing the Debtors were not "engaged in commercial or business activities" on the petition date.
- The parties submitted briefs and the matter was fully argued and briefed before the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Stevens) | Held (Court) |
|---|---|---|---|
| Subchapter V Eligibility: engagement in commercial or business activities on the petition date | Debtors weren't actively operating or winding down a business; all assets were liquidated or non-existent; no ongoing activity shown | Debtors held business assets, were winding down business (foreclosure sale/payouts), and still negotiating legacy business debts | Debtors were engaged in commercial or business activities: activities included leasing, asset liquidation, and debt negotiation on petition date |
| Statutory interpretation of “engaged in commercial or business activities” | Must be actively and currently operating a business on petition date | Standard should be broad, including winding down or dealing with business debts | "Engaged" is contemporaneous, but “commercial or business activities” includes winding down, negotiating debt, and asset liquidation |
| Sufficient business debts for Subchapter V eligibility | Not disputed | Debts exceed 50% business liability, below statutory cap | Satisfied: >50% of debts stem from business activity, below cap |
| Eligibility of individuals as “persons” under Subchapter V | Not disputed | Individuals qualify | Satisfied: Debtors are “persons” under the Code |
Key Cases Cited
- In re Blue, 630 B.R. 179 (Bankr. M.D.N.C. 2021) (business activity interpreted to include winding down and rental income for Subchapter V)
- In re Ikalowych, 629 B.R. 261 (Bankr. D. Colo. 2021) (personal guarantees and ownership activity constitute business activity)
- In re Thurmon, 625 B.R. 417 (Bankr. W.D. Mo. 2020) (contrasts operating vs. ceased businesses for eligibility)
- NetJets Aviation, Inc. v. RS Air, LLC (In re RS Air, LLC), 638 B.R. 403 (B.A.P. 9th Cir. 2022) (present activity needed for Subchapter V eligibility)