True-Up Debate: In re Staples vs In re Packet Construction for Subchapter V Plans — Provision

What the True-Up Debate Actually Is and Why It Matters Now

A Subchapter V true-up provision is a plan clause requiring a debtor to pay additional disposable income to unsecured creditors if actual post-confirmation cash flow exceeds the projections in the confirmed plan. This mechanism addresses the inherent uncertainty in projecting small business revenue over a three-to-five-year plan period, but two recent bankruptcy court decisions have created a split on whether such provisions are permissible under the Bankruptcy Code.

The true-up debate centers on a fundamental tension in Subchapter V practice: the Code requires debtors to project disposable income over the plan term, but small business revenue is inherently volatile. A true-up provision attempts to bridge this gap by treating excess cash flow as additional plan payments rather than windfall retained by the debtor.

Subchapter V filings increased 17% year-over-year to 200 cases in August 2025, according to Epiq AACER data.¹ As more small businesses enter this streamlined chapter, the question of how courts treat projection accuracy has become a recurring confirmation battleground. The UST trustee reviews Monthly Operating Reports for accuracy of cash flow projections and may object to plans lacking adequate projection methodology.²

The split creates uncertainty for practitioners drafting Subchapter V plans for businesses with roughly $1 million to $10 million in revenue — a range where cash flow variability is highest, according to U.S. Trustee program data.³

The Staples Standard for Subchapter V True-Up Provisions

In re Staples rejected a true-up provision on the grounds that it undermined the finality of plan confirmation. The court reasoned that 11 U.S.C. § 1129(a)(11) requires feasibility to be determined at confirmation based on the debtor's projected cash flows, not on post-confirmation adjustments that effectively reopen the plan.

Under the Staples standard, a debtor must demonstrate that its projections are sufficiently reliable at the time of confirmation. The court viewed the true-up as an admission that the debtor could not meet the feasibility standard, rather than a prudent safeguard against uncertainty. This approach places significant weight on the accuracy of the debtor's initial projection methodology.

The ruling creates a practical challenge for debtors with variable revenue streams. A typical Subchapter V debtor in the $1M to $10M revenue range often experiences seasonal fluctuations, client concentration risk, or industry-specific volatility that makes precise three-year projections difficult.

The Staples standard effectively requires these debtors to either over-project disposable income — paying creditors more than actual cash flow supports — or risk confirmation objections on feasibility grounds.

How Packet Construction Shifted the True-Up Analysis

In re Packet Construction (No. 23-10860, TxWB 2024) took the opposite position, holding that Subchapter V plans may include true-up provisions requiring debtors to pay excess disposable income if projections prove inaccurate.³ The court emphasized that the true-up served the Code's purpose of maximizing distributions to unsecured creditors while preserving the debtor's ability to reorganize.

The Packet Construction court distinguished Staples by focusing on the language of 11 U.S.C. § 1191(c), which requires debtors to commit projected disposable income to the plan. The court reasoned that a true-up provision does not alter the plan's terms — it merely ensures that the debtor's actual disposable income matches the projected amount over the plan period.

This ruling provides more flexibility for debtors with variable revenue. A hypothetical Subchapter V debtor with $3M in annual revenue and seasonal peaks in Q4 can propose a plan based on conservative projections, with the true-up capturing any upside without requiring the debtor to over-commit.

The court's analysis suggests that projection methodology matters less when a true-up provision is present, because the mechanism self-corrects for inaccuracies.

Key Differences Between the Two Bankruptcy Court Rulings

The table above highlights the core tension. Staples prioritizes finality and requires debtors to meet a high bar for projection accuracy at confirmation. Packet Construction prioritizes creditor recovery and allows post-confirmation adjustments to align actual and projected disposable income.

For practitioners, the choice between these approaches depends on the debtor's revenue stability and the UST's position in their jurisdiction. A debtor with predictable recurring revenue may prefer the Staples approach, avoiding the administrative burden of post-confirmation true-up calculations. A debtor with volatile revenue may need the Packet Construction approach to confirm a feasible plan at all.

Drafting a True-Up Provision That Survives Confirmation

A well-drafted true-up provision must address three elements: the measurement period, the calculation methodology, and the payment mechanism. The provision should define "excess disposable income" with reference to the debtor's Monthly Operating Reports, which 11 U.S.C. § 1187 requires to be filed within 21 days of each calendar month-end.⁴

The measurement period should align with the plan term under 11 U.S.C. § 1191(b), which limits Subchapter V plans to 3 years, extendable to 5 years if necessary for plan feasibility.⁵ A typical provision might calculate excess disposable income on an annual basis, with payments due within 30 days of the debtor's fiscal year-end.

The calculation methodology must account for reasonable operating expenses and capital expenditures. Disposable income calculations under 11 U.S.C. § 1191(d) require debtors to project income based on historical patterns and known changes, not speculative estimates.⁶ The true-up provision should incorporate the same methodology, comparing actual net income to projected net income after adjusting for documented variances in operating expenses.

Consider including a materiality threshold to avoid disputes over minor variances. A provision requiring true-up payments only when excess disposable income exceeds 10% of projected disposable income, for example, reduces administrative burden while still protecting creditor recovery.

Practical Implications for Your Sub V Plan Strategy

The Staples-Packet Construction split means that jurisdiction matters. Practitioners should research whether their local bankruptcy court has addressed true-up provisions and, if not, consider filing a motion for determination or including a choice-of-law provision in the plan.

For debtors in jurisdictions following Staples, the emphasis must be on projection methodology. The debtor should present projections supported by historical financial data, industry benchmarks, and sensitivity analysis. A plan that shows projected disposable income under multiple scenarios — base case, downside, and upside — demonstrates that the debtor has considered variability without relying on a true-up to correct errors.

For debtors in jurisdictions following Packet Construction, the true-up provision should be drafted as a plan term, not a post-confirmation modification. The provision should state clearly that the true-up is part of the plan's treatment of unsecured claims, not a separate agreement that could be challenged as an impermissible modification under 11 U.S.C. § 1127.

The UST's position on true-up provisions may also vary by region. Some UST offices view true-ups as a best practice that protects creditor recovery, while others see them as an end-run around the feasibility requirement. A pre-confirmation conference with the UST can clarify the office's position before the debtor invests in drafting a provision that will face objection.

What the True-Up Debate Means for Feasibility Determinations

Feasibility under 11 U.S.C. § 1129(a)(11) requires the debtor to demonstrate that confirmation is not likely to be followed by liquidation or the need for further financial reorganization. The true-up debate directly affects how courts assess this standard.

Under Staples, the court evaluates feasibility based on the debtor's projections at confirmation. If the projections are unreliable, the plan fails feasibility regardless of whether a true-up provision exists. This approach places a premium on projection methodology and requires debtors to invest in financial analysis before filing.

Under Packet Construction, the true-up provision itself supports feasibility by ensuring that the plan can adapt to actual cash flow. The court in Packet Construction reasoned that a plan with a true-up is more likely to succeed than a plan with rigid projections that may prove inaccurate. This approach reduces the burden on debtors to produce perfect projections but increases the administrative complexity of plan administration.

For practitioners, the practical implication is clear: the debtor's projection methodology must be defensible regardless of which standard applies. A plan with a true-up provision but no supporting financial analysis will face objections under either standard. The true-up is a supplement to sound methodology, not a substitute for it.

Your Next Step

Review your current Subchapter V plan templates and assess whether they include a true-up provision. If your jurisdiction follows Staples, strengthen your projection methodology with historical financial data and sensitivity analysis. If your jurisdiction follows Packet Construction, draft a true-up provision that defines excess disposable income, sets a measurement period, and includes a materiality threshold. For a sample true-up provision clause or a review of your current plan language, contact [email protected].