## Facts

- Andrew and Christine Blanchard filed an individual Chapter 11 case in September 2019.
- After Subchapter V became effective, the debtors amended their petition to elect Subchapter V treatment.
- The United States Trustee moved to convert the case to Chapter 7 or dismiss under 11 U.S.C. § 1112(b), arguing the case had made little progress and the late election would circumvent deadlines.
- An unsecured creditor, WBL SPO I, LLC, joined the conversion/dismissal request and separately objected to Subchapter V eligibility.
- The debtors’ liabilities arose predominantly from personal guarantees and other obligations tied to loans for entities they owned or controlled.
- The debtors owned interests in several business entities (some operating, some not) and owned rental properties producing income.
- The claims register reflected substantially more business-related debt than consumer debt.

## Issues

1. Whether individual debtors satisfy 11 U.S.C. § 1182(1)’s requirement that a debtor be “engaged in commercial or business activities,” including when debts stem largely from guarantees and business ownership interests and some operations have ceased.
2. Whether § 1182(1) imposes a requirement that the debtor be “currently” engaged in commercial or business activities.
3. Whether debtors in a preexisting Chapter 11 case may elect Subchapter V by amendment, and whether the case should instead be converted to Chapter 7 or dismissed due to delay and creditor-prejudice concerns.

## Decision

- The court held § 1182(1) does not require a debtor to be “currently” operating a business.
- The court found the debtors were “engaged in commercial or business activities” based on their business ownership/management activities, rental activity, and the predominance of business-related debt.
- The court rejected the argument that personal guarantees of business debt cannot qualify an individual as engaged in commercial or business activities.
- The court permitted the debtors to amend their petition and proceed under Subchapter V within the pending Chapter 11 case.
- The court denied conversion to Chapter 7 on the asserted ground of Subchapter V ineligibility and addressed due-process concerns through notice and an opportunity for affected creditors to be heard.

## Legal Principles

- Courts interpret § 1182(1) according to its text and should not add a “currently engaged” or “currently operating” limitation absent statutory language.
- “Engaged in commercial or business activities” may include managing, winding down, or addressing obligations of business ventures, not only running an active going concern.
- Individual debtors can qualify for Subchapter V when their financial affairs are predominantly tied to business obligations, including personal guarantees connected to their enterprises.
- When eligibility for a Bankruptcy Code chapter or subchapter is challenged, the debtor bears the burden to prove eligibility.
- A Subchapter V election may be permitted in a pending Chapter 11 case when not barred by statute and when creditor notice and an opportunity to be heard address procedural fairness.

## Conclusion

The court allowed the debtors to proceed under Subchapter V, holding that § 1182(1) contains no “currently operating” requirement and that individuals whose debts and activities are substantially business-related—including through entity ownership, guarantees, and rental operations—may qualify, even when the election occurs mid-case.


In re Blanchard, No. 19-12440 (Bankr. E.D. La. July 16, 2020)