Auto Dealer and Repair Shop Subchapter V: Floor Plan Financing, Parts Inventory, and Licenses
- Melissa A. Youngman
- 2 hours ago
- 7 min read
Melissa Youngman, PA and Winter Park Estate Plans & ReOrgs represent businesses in Chapter 11 and Subchapter V cases before the United States Bankruptcy Court for the Middle District of Florida, including the Orlando, Jacksonville, Tampa, and Fort Myers divisions, with a primary practice footprint in Orange, Seminole, Osceola, Volusia, Lake, and Brevard counties.
An auto dealership or independent repair shop carries a balance sheet that does not like the books and records of other small businesses. Floor plan financing creates a revolving, vehicle-by-vehicle debt load tied directly to inventory. Equipment notes cover lifts, diagnostic tools, and specialty machinery. Parts inventory lines may be separately collateralized. These layered obligations mean that a cash-flow disruption, whether from a slow sales quarter, a manufacturer dispute, or a spike in operating costs, can push an otherwise viable operation toward insolvency faster than almost any other business category.
Subchapter V of Chapter 11 offers a reorganization path designed for exactly this situation. Under 11 U.S.C. §§ 1181 through 1195, an eligible automotive business can restructure its debt, retain its licenses, address its franchise agreement, and emerge with its customer relationships and workforce intact. This post covers the specific issues that arise in a Subchapter V case for auto dealers and repair shops in Central Florida.
If your dealership or shop is in Orlando, Maitland, Longwood, Kissimmee, or elsewhere in Orange, Seminole, or Osceola County, the United States Bankruptcy Court for the Middle District of Florida, Orlando Division, handles your case.
Subchapter V Eligibility for Automotive Businesses
Subchapter V eligibility turns on § 1182(1)(A): the debtor's aggregate noncontingent, liquidated secured and unsecured debts must not exceed $3,424,000.00 on the petition date, and at least 50 percent of those debts must arise from commercial or business activities. Many independent repair shops and smaller used-vehicle dealers fall comfortably within that threshold. A new-car franchise dealer carrying a substantial floor plan balance may find that the aggregate of its floor plan notes, real estate obligations, and trade payables approaches or exceeds the cap.
Businesses above the $3,424,000.00 threshold are not without options. Traditional Chapter 11 remains available, and most of the strategic considerations below apply in that context as well. The Subchapter V track is the preferred path where eligibility can be achieved: no disclosure statement, a 90-day plan deadline that compresses the timeline, and the capacity for nonconsensual cramdown under § 1191(b) without satisfying the absolute priority rule.
Floor Plan Financing and the Automatic Stay
Floor plan lenders hold a perfected security interest in each vehicle in a dealer's inventory, typically structured as a purchase money security interest on a unit-by-unit basis. When a dealer falls behind on remittances, the primary risk is that the floor plan lender will demand immediate repossession of the inventory securing its loans.
The automatic stay under § 362(a) stops that repossession the instant the bankruptcy petition is filed. Every collection action and every repossession attempt is halted. The stay does not last forever, however. A floor plan lender will almost certainly move for relief from stay or request adequate protection for its collateral position in the vehicle inventory.
The dealer's ability to sell units from that inventory and use the proceeds requires court authorization to use cash collateral under § 363(c), because those proceeds are cash collateral of the floor plan lender. A cash collateral order, negotiated in the opening days of the case, is the operational lifeline for any dealer in Subchapter V. Typical requirements include timely remittance of floor plan payoffs on each unit sold, accurate inventory reporting, and maintenance of agreed coverage ratios. The reorganization plan must then address the floor plan lender's secured claim: either by curing arrears and maintaining the ongoing credit relationship, or by proposing a treatment the court can confirm under §§ 1191 and 1129.
Parts Inventory and Vendor Reclamation Rights
Parts inventory adds another layer of secured-creditor analysis. Suppliers who delivered parts within the 45 days before the petition may assert reclamation rights under § 546(c), demanding return of goods delivered to an insolvent debtor. Vendors who also hold a perfected purchase money security interest in their delivered goods occupy a stronger position than ordinary reclamation claimants and may qualify for adequate protection directly.
The practical consequence is that the debtor's counsel must evaluate vendor relationships carefully before filing. A repair shop whose business model depends on high parts throughput needs early clarity on which vendors hold security interests, what goods were recently delivered, and whether a critical-vendor arrangement can be structured to protect essential supply chains. These issues are often addressed in the first-day motion package.
Dealer Licenses and Repair Shop Endorsements Under § 525
A threshold question for any automotive business in bankruptcy is whether state-issued dealer licenses and repair shop endorsements can survive the filing. Section 525(a) of the Bankruptcy Code addresses this directly: a governmental unit may not revoke or refuse to renew a license or permit solely because the debtor has filed for bankruptcy protection, or solely because the debtor has not paid a debt that is or may be dischargeable in the case.
This protection covers Florida dealer licenses and independent repair shop endorsements issued by relevant state and local licensing authorities. The word "solely" is operative however. A licensing authority retains the right to act on independent grounds, such as documented consumer-protection violations or lapses in required surety bonds arising from conduct unrelated to the bankruptcy. A dealership or repair shop that has been operating in compliance with its licensing requirements should expect to retain its licenses through the Subchapter V process. The automatic stay under § 362(a)(6) also bars any governmental act that functions as collection on a pre-petition claim.
Franchise Agreements: Assumption or Rejection Under § 365
A new-car or certified pre-owned franchise agreement with a manufacturer is an executory contract within the scope of § 365. As the debtor-in-possession, the dealer must decide whether to assume or reject it within the framework of the reorganization plan.
Assuming the franchise agreement requires curing all monetary defaults and providing adequate assurance of future performance. For a dealer whose primary default was a deferred floor plan remittance or a postponed facility improvement obligation, cure within the plan's structure may be achievable. Rejection terminates the franchise relationship and makes sense only when the dealer has determined that the franchise is not part of a viable go-forward business.
Rejection of a franchise agreement carries its own consequences under applicable state franchise law, which operates alongside the Bankruptcy Code. This is a point to analyze with counsel before the petition is filed, not after.
Creditor Committees in Subchapter V Cases
Section 1181(b) makes the § 1102 creditor committee provisions generally inapplicable in Subchapter V. In the Middle District of Florida, the United States Trustee's Office appoints an unsecured creditors' committee only in larger, more complex Chapter 11 cases with a sizeable creditor class. For most small and mid-size business reorganizations filed in this district, no committee is formed, and unsecured creditors act individually or not at all.
For an auto dealer or repair shop, this means one of the primary cost drivers in a traditional Chapter 11 is absent. There is no committee counsel generating fees on every contested matter. The Subchapter V trustee appointed under § 1183 serves a facilitation role rather than an oversight role, working toward a consensual plan rather than acting adversarially to management.
Central Florida Auto Businesses in the Middle District of Florida
Automotive businesses in the greater Orlando area, including dealerships and shops in Maitland, Longwood, Oviedo, Kissimmee, and Clermont, file in the Orlando Division of the Middle District of Florida. The § 1188 status conference, required within 60 days of the order for relief, and the 90-day plan filing deadline apply in the ordinary course.
Engaging the Subchapter V trustee early, and bringing the floor plan lender to the table as soon as possible on adequate protection and cash collateral terms, is a practice that often reduces contested litigation and keeps the business operating through confirmation. Pre-petition planning is the period when those conversations can happen without the pressure of the automatic-stay clock.
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases throughout the Middle District of Florida. For an overview of Subchapter V eligibility and the reorganization process, see our cornerstone guide to Subchapter V bankruptcy.
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Melissa Youngman is licensed to practice law in the State of Florida and regularly represents debtors, creditors, and other parties in interest in the United States Bankruptcy Court for the Middle District of Florida. This blog addresses issues under federal bankruptcy law and Florida state law; the outcome of any specific matter depends on its particular facts and on statutes, rules, and case law that may have changed after the date of publication.
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