Carolina Sleep Shoppe, LLC
Case Information
FILED & JUDGMENT ENTERED
Christine F. Winchester
April 15 2025 Clerk, U.S. Bankruptcy Court Western District of North Carolina _____________________________ Ashley Austin Edwards United States Bankruptcy Judge IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA SHELBY DIVISION
In re:
Case No. 24-40057 Chapter 11 Carolina Sleep Shoppe, LLC,
Debtor.
OPINION AND ORDER THIS MATTER comes before the Court upon the Debtor’s Motion to Close Case (the
“Motion”). [D.I. 121]. The Motion asks the Court to close a case initiated under Subchapter V of
Chapter 11 of the Bankruptcy Code with a non-consensually confirmed plan under
Subchapter V also “provides incentives and procedures to encourage small business debtors and their creditors to arrive at consensual plans.” See Hearing on Oversight of Bankruptcy Law & Legislative Proposals Before the Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on the Judiciary , 116th Cong. 2, at *1–2 (Revised Testimony of A. Thomas Small on Behalf of the National Bankruptcy Conference) [hereinafter Revised Testimony of A. Thomas Small ]. “Small business debtors in subchapter V will want to attain confirmation through a consensual plan to avoid 3 to 5 years of trustee supervision and to receive a discharge upon confirmation.” Id. at *4.
A bankruptcy case initiated under Subchapter V should move quicker than a typical
Chapter 11 case.
See id.
at *5–6 (“Subchapter V cases will move fast and debtors will not languish
in chapter 11;” “if a debtor does not believe it can be reorganized on the fast track, or doesn’t want
the scrutiny of a trustee, the debtor is not compelled to elect to be a small business debtor under
subchapter V.”). The Bankruptcy Code mandates such speed by requiring Subchapter V debtors to
file a plan of reorganization within 90 days of the order for relief and only requires that non-
consensual plans last for three to five years.
See
II. Procedural History
The Debtor initiated this case by filing a voluntary petition under Chapter 11 of the Bankruptcy Code on April 8, 2024 (the “Petition”). In the Petition, the Debtor elected to proceed under Subchapter V. The Court appointed James David Nave to act as Subchapter V Trustee on the same day that the Petition was filed. On May 9, 2024, prior to the meeting required by section 1188 of the Bankruptcy Code, the Debtor filed a Section 1188(c) Plan Status Conference Report (the “Report”). The Debtor stated in the Report that it expected its plan of reorganization to be confirmed on a consensual basis without “substantial controversy.”
A. Subchapter V Plan and Confirmation On June 27, 2024, the Debtor filed a proposed plan of reorganization under Subchapter V (the “Plan”). The Plan proposed that (a) there would be five classes of creditors; (b) the Plan would “be funded from revenues generated during the Debtor’s post-petition operations,” the Debtor’s post-confirmation proposed disposable income, and from an “Enabling Loan;” (c) the Debtor or its agent would make distributions under the Plan; and, (d) “[o]n the Confirmation Date, all assets of the Debtor and Debtor in Possession shall vest in the Reorganized Debtor free and clear of any and all Claims, liens, Interests, and other interests, charges and encumbrances except as otherwise expressly provided in this Plan or in the Confirmation Order, but shall remain property of the Estate until closure of the Chapter 11 Case.”
On June 28, 2024, the Court entered an order (the “Confirmation Hearing Order”) setting
July 26, 2024, as the hearing date to consider confirmation of the Plan (the “Confirmation
Hearing”). Shortly thereafter, the Debtor served its creditors with the Plan, the Confirmation
Hearing Order, and a ballot for creditors to vote on the Plan. Only those creditors in classes 1
through 4 of the Plan were entitled to vote on the Plan. However, no creditor returned a ballot, and
no one objected to confirmation of the Plan. Notably, counsel =for the United States Small
Business Administration (the “SBA”), the Debtor’s largest and only secured creditor, appeared at
the Confirmation Hearing and indicated that the SBA did not “have an objection to moving forward
with this Plan.” At the Confirmation Hearing, the Court found that the Plan should be confirmed
and subsequently entered an order confirming the Plan under
The Confirmation Order made several important findings, including that (1) “[t]he Debtor
timely transmitted the Plan and an appropriate ballot conforming to Official Form No. 314 to its
creditors, equity security holders, and all other parties in interest;” (2) “[t]he confirmation hearing
was held on due and proper notice to all interested parties;” (3) “[n]o creditors voted to accept or
reject the Plan” and that “no objections were filed in opposition to the Plan;” (4) “[a]ll requirements
for confirmation of the Plan set forth in
B. Post Confirmation
On October 4, 2024, the Debtor filed a Notice of Substantial Consummation , to which no party objected. On November 4, 2024, the Court entered an order granting the Subchapter V Trustee’s First and Final Application for Compensation , which the trustee had filed just over two months earlier without objection. On December 12, 2024, the Debtor filed a Chapter 11 Post Confirmation Report , which provided that the Debtor was “pursuing final claim objections, which should be finalized in December of 2024” and that the Debtor anticipated that “its case will be closed in January of 2025” (the “Post-Confirmation Report”). No one objected to the Post- Confirmation Report. On February 6, 2025, the Debtor’s counsel filed its final application for allowance of compensation and reimbursement of expenses, which the Court granted without objection on February 20, 2025.
On March 6, 2025, the Debtor filed a Final Report and Ex Parte Motion for Entry of Final Decree (the “Final Report”). The Final Report provided that (1) the Debtor had filed the Notice of Substantial Consummation, (2) “[a]ll administrative claims and expenses have been paid in full,” and (3) the “Debtor has completed its claims review and orders have been entered on all claim objections.” Regarding substantial consummation of the Plan, the Final Report provided that (a) the Debtor was unaware of any valid claims in classes 1 and 3; (b) the Debtor had commenced payments to the sole creditor in class 2 (the SBA); (c) annual distributions to claimholders in class 4, the unsecured creditors, would begin in December 2025; and (d) the equity interests in class 5 would not receive any distribution under the Plan.
III. Motion and Related Pleadings
On March 10, 2025, the Debtor filed the Motion, seeking entry of an order closing this
bankruptcy case pursuant to
[t]he United States Bankruptcy Administrator for the Western District of North Carolina [(the “Bankruptcy Administrator”)] contacted the [Debtor’s counsel] on March 10, 2025, essentially stating that closure of the Debtor’s case is inappropriate because the company will not receive its discharge until the conclusion of its five- year term and that, if the company wishes to close its case prior to the entry of discharge, a specific motion separate from that already contained in the Final Report would be necessary.
The Debtor filed the Motion and argued that it should be granted because (1) the requirements set forth under the Bankruptcy Code and Federal Rules of Bankruptcy Procedure were satisfied, (2) the Debtor’s plan is straightforward, (3) “[f]urther bureaucratic administration of the Debtor’s affairs in this Court is unnecessary and will serve only to unnecessarily increase the Debtor’s professional fee costs,” and (4) “the Reorganized Debtor can simply move to reopen the case as necessary in order to seek entry of its discharge” at the completion of the Plan period in five years.
On March 17, 2025, the Bankruptcy Administrator filed a response to the Motion urging
the Court to deny the Motion or, alternatively, to “clarify certain details not addressed in the
Motion” (the “Response”). The Bankruptcy Administrator argued that (1) she was “unaware of
costly administrative burdens imposed on subchapter V debtors in this district during the
postconfirmation period,” particularly given the inactive docket in this case post-Confirmation
Hearing and the fact that quarterly fees are not assessed in Subchapter V cases; (2) no Subchapter
V cases in this jurisdiction with plans non-consensually confirmed under
On March 20, 2025, the Debtor filed a reply to the Response (the “Reply”). The Debtor
argues in the Reply that (1) any “blanket rule [requiring] all non-consensually confirmed
Subchapter V cases [to] remain open during the entire term of their confirmed plans” is
inappropriate because “the Court must consider in each situation whether the bankruptcy estate is
‘fully administered’ for purposes of Bankruptcy
IV. Hearing
On March 21, 2025, the Court conducted a hearing on the Motion (the “Motion Hearing”). Richard S. Wright appeared on behalf of the Debtor. Shelley K. Abel appeared on behalf of herself as the Bankruptcy Administrator. In addition to the arguments provided in the pleadings, Mr. Wright argued that (1) keeping the case open is burdensome to the Debtor, as it strains the relationship with the Debtor’s franchisor; (2) the Debtor cannot make certain business decisions without the Court’s approval during the pendency of the case, such as whether it can buy a new work vehicle outside of the ordinary course of business; (3) the fixed plan payment will protect creditors’ interests and make it clear if there is anything out of the ordinary course; (4) there is no basis to find that the Debtor is any “riskier” just because its plan was non-consensually confirmed, especially because the Plan was non-consensually confirmed due to no creditor voting rather than creditors opposing the Plan; (5) counsel for the SBA appeared at the Confirmation Hearing and did not oppose the Plan; (6) Subchapter V specifically contemplates having the Subchapter V Trustee exit prior to plan completion; (7) sections 1141(b) and 1186 do not conflict; (8) the property of the estate vested in the Debtor and still remains property of the estate, pursuant to the Plan terms; (9) after plan confirmation, debtors are generally much less likely to compensate their bankruptcy attorneys; and (10) keeping the case open requires incurring ongoing administrative costs.
In addition to the arguments in the Response, the Bankruptcy Administrator argued that (1)
there has been a uniform policy in this jurisdiction of keeping Subchapter V cases open until plan
completion if the plan was confirmed non-consensually under
ANALYSIS
The Debtor brought this Motion under
Notably,
The federal statute that implements the Federal Rules of Bankruptcy Procedure provides
that those “rules shall not abridge, enlarge, or modify any substantive right.”
Considering these authorities, the Court must grapple with two issues to determine whether to close this case: (1) whether the Court has discharged the Subchapter V Trustee and (2) whether the estate has been fully administered. If the Court finds that both factors have been met, this case must be closed.
I. Discharge of the Subchapter V Trustee
As an initial matter, in a Subchapter V case, the “trustee” that is referenced in
A Subchapter V trustee’s authority primarily arises out of
(A) transfer of all or substantially all of the property proposed by the plan to be transferred;
(B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and
(C) commencement of distribution under the plan.
The Bankruptcy Code does not provide for the termination of a Subchapter V Trustee’s
service—i.e., the trustee’s discharge—if a plan is non-consensually confirmed under
Courts have generally held that “the determination of whether to discharge a Subchapter V
trustee” in a case with a plan non-consensually confirmed under
In this case, the reorganized Debtor is responsible for all distributions under the Plan, and
the Subchapter V Trustee’s duties were set to terminate upon substantial consummation of the Plan,
pursuant to the Confirmation Order. Considering that the Debtor filed the Notice of Substantial
Consummation on October 4, 2024, and both parties agree that substantial consummation has
occurred in this case, the Court finds that the Subchapter V Trustee’s duties have been terminated
pursuant to the Confirmation Order. This includes any duty to file a final report.
[5]
Therefore, the
Subchapter V Trustee in this case has been discharged pursuant to
administered.” Black’s Law Dictionary defines the term “fully administered” as follows: “The
English equivalent of the Latin phrase ‘
plene administravit
’; being a plea by an executor or
administrator that he has completely and legally disposed of all the assets of the estate[] . . . .”
FULLY ADMINISTERED, Black’s Law Dictionary (5th ed. 1979). Additionally, one of the
advisory committee’s notes to
(1) whether the order confirming the plan has become final, (2) whether deposits required by the plan have been distributed, (3) whether the property proposed by the plan to be transferred has been transferred, (4) whether the debtor or the successor of the debtor under the plan has assumed the business or the management of the property dealt with by the plan, (5) whether payments under the plan have commenced, and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved.
In addition to these factors, the Advisory Committee’s Note provides that a “court should
not keep [a chapter 11] case open only because of the possibility that the court’s jurisdiction may
be invoked in the future.”
The Advisory Committee’s Note was written 28 years before the SBRA, which created
Subchapter V, was enacted into law in 2019. At the time that the committee’s note was written, any
non-individual chapter 11 debtor that received a discharge would receive the discharge upon plan
confirmation.
See
A. “Fully Administered” Prior to Discharge
With Congress enacting the SBRA in 2019, there is not much precedent to decide whether
a Subchapter V case may be considered “fully administered” prior to entry of discharge. However,
precedent involving traditional chapter 11 cases for individual debtors provides some guidance on
this issue because those debtors do not receive a discharge until “completion of all payments under
the plan,”
see
Since the 2005 amendments to the Bankruptcy Code, individual chapter 11 debtors have been required to make payments to creditors for as long as five years before receiving a discharge. Some courts have interpreted BankruptcyRule 3022 to require that individual chapter 11 cases remain open until the discharge order is entered, reasoning that the case is not fully administered before then. Most courts, on the other hand, have consented to entry of a final decree after plan confirmation, subject to reopening for entry of the discharge order. The issue is important because while the case is closed no quarterly U.S. trustee fees are due, nor must any monthly operating reports be filed.
There is less reason to close subchapter V cases expeditiously, as subchapter V debtors do not have to pay U.S. Trustee fees and monthly operating reports are not required after the effective date of a confirmed plan.
9A Collier on Bankruptcy ¶ 3022.03 (16th ed. 2025) (citations omitted). Again, in the context of
individual debtors in traditional chapter 11 cases, Collier on Bankruptcy recognizes “[t]he fact that
distributions remain to be made in a chapter 11 case does not preclude the case from being closed,
nor does the fact that an individual debtor has not yet received a discharge, which is usually entered
after completion of plan payments.” 3 Collier on Bankruptcy ¶ 350.02 (16th ed. 2025) (citations
omitted). In certain situations, this Court allows individual debtors in traditional chapter 11 cases
to close their case prior to entry of discharge and to subsequently move to reopen the case for the
purpose of obtaining a discharge. Bankr. N.C.W.D. R. 4004-2. Because this Court already permits,
pursuant to its Local Rules, certain chapter 11 debtors to close their case prior to entry of discharge,
it follows that the entry of discharge is not a relevant factor in determining whether a bankruptcy
estate has been fully administered. In other words, whether the debtor has received a discharge is
not determinative in the analysis of whether assets of the estate have been completely and legally
disposed of under
B. Application to This Case
In this case, the factors set forth in the Advisory Committee’s Note weigh in favor of
finding that the estate has been fully administered. First, the Confirmation Order was entered on
August 13, 2024, and has become final. Second, the Plan did not require for any deposits to be
distributed. Third, the Plan as confirmed provided that property of the estate vested in the
reorganized Debtor upon confirmation of the Plan.
[8]
Fourth, the Debtor operates the business and
manages the property dealt with by the Plan. Fifth, the Debtor has begun making the payments
under the Plan. Lastly, other than this Motion and the Final Report, all motions, contested matters,
and adversary proceedings have been finally resolved. Thus, here, the Debtor has completely and
legally disposed of all the assets of the estate. Therefore, in this case specifically, the estate has
been fully administered pursuant to
C. Practical Considerations
As has been noted above, there are not generally as many burdens in Subchapter V cases as there are in traditional chapter 11 cases, such as the requirement for the debtor to pay quarterly fees or to file monthly operating reports after the effective date of a confirmed plan. See 9A Collier on Bankruptcy ¶ 3022.03 (16th ed. 2025) (citations omitted); Gui-Mer-Fe, Inc. , 2022 WL 1216270, at *5. Additionally, there is a substantial fee to reopen a case (as of the date of this opinion and order, the fee to reopen a chapter 11 case is $1,167.00) (the “Reopening Fee”). This Reopening Fee makes it costly for a debtor to reopen a case to receive a discharge and for creditors who seek to reopen a case for cause, such as in the case when the debtor has failed to comply with plan requirements. Thus, practically speaking, for most debtors and creditors, there may not be a strong reason to close a Subchapter V case prior to entry of discharge.
Of course, the Court has discretion when deciding if an estate has been fully administered
and is given flexibility when weighing the factors set forth in
III. Procedural Requirements
Going forward, there is some dispute regarding the appropriate procedure to discharge the
trustee and to close a Subchapter V case prior to entry of discharge where the Debtor’s plan was
non-consensually confirmed under
Additionally, in this case, the Debtor filed the Final Report and then filed the Motion after the Bankruptcy Administrator allegedly objected to the Debtor attempting to close the case through a request in the Final Report. The Court agrees that, for administrative purposes, it is inappropriate to request that a case like this be closed in a final report. Instead, a party in interest must file a motion to close the case that addresses whether the case has been fully administered and if the Subchapter V trustee has been discharged.
CONCLUSION
For the reasons set forth above, the Court holds that a case initiated under Subchapter V of
Chapter 11 of the Bankruptcy Code may be closed prior to entry of discharge where the Debtor’s
plan was non-consensually confirmed under
IT IS SO ORDERED. This order has been signed electronically. United States Bankruptcy Court The Judge’s signature and Court’s seal
appear at the top of this order.
Notes
[1] Plan confirmations that occur under
[2] Again, as noted herein, none of the creditors filed (1) a ballot to reject the Plan or (2) a Plan objection either.
[3] Notably, the Bankruptcy Administrator filed the only objection to the Motion to close this case. No creditor has come forward objecting to the case’s closure. Additionally, while the Bankruptcy Administrator raises important concerns regarding the closure of a Subchapter V case in this posture, the Court need not address every argument raised by the parties to decide this Motion.
[4] The Court cites to the 1979 edition of Black’s Law Dictionary to understand the meaning of the term at the time that the statute was enacted.
[5] The fact that a Subchapter V Trustee may not have to file a final report raises concerns regarding the administration of a bankruptcy case, particularly as it relates to notice of the Subchapter V Trustee’s discharge. Although the Court finds that the Subchapter V Trustee in this case was discharged and has no duty to file a final report pursuant to the Confirmation Order, there are procedures that must be followed to clarify that the discharge of the Subchapter V Trustee has occurred. These procedures are discussed below in the section titled “Procedural Requirements.”
[6] It may be appropriate for a Subchapter V Trustee to remain in a case following confirmation, even if the Subchapter V Trustee does not have the responsibility of making distributions under the confirmed plan. This may be particularly relevant where an entity, including the Bankruptcy Administrator, believes that additional oversight is necessary for any reason, for example as in the case where creditors do not receive a sum certain amount in distributions. In this case, no party requested that the Subchapter V Trustee remain in the case, and no party objected to the Subchapter V Trustee’s discharge. Critically, had the Subchapter V Trustee remained in the case and not been discharged, this case would not have been closed at this juncture.
[7] To be clear, although the Court has found that the Subchapter V Trustee has been discharged, the Court has not entered an order discharging the Debtor of any of its debts at this point.
[8] As is noted above, the Bankruptcy Administrator argued in her Response and at the Motion Hearing that the Plan did
not allow property of the estate to vest in the reorganized Debtor because the property remains property of the estate
until case closure; the Bankruptcy Administrator also argued that