What is Chapter 11
Under Chapter 11 bankruptcy, a debtor can restructure finances through a plan of reorganization approved by the bankruptcy court. By reducing obligations and modifying payment terms, a Chapter 11 plan can help a debtor balance its income and expenses, regain profitability, and continue in operation. Under Chapter 11 bankruptcy, a debtor also can sell some or all of its assets so it can downsize its business if necessary or pay down claims that it owes.
Special Provisions for Chapter 11 Bankruptcy Debtors
For the most part, small businesses and major corporations have to follow the same rules and meet the same requirements to reorganize under Chapter 11. There are, however, some special provisions for small business debtors that can help them fast track through the Chapter 11 process and reduce legal and other restructuring expenses.
Under the Bankruptcy Code, a Chapter 11 proceeding filed by a “small business debtor” is considered to be a “small business case.” A “small business debtor” is a person or entity who: (1) is engaged in business or other commercial activities; and (2) owes no more than $2,490,925 in total claims (excluding obligations owed to insiders such as family members of the business owners).
Here are some other special procedures for small business Chapter 11 Bankruptcy cases:
No Creditors’ Committee in Chapter 11 Bankruptcy.
Ordinarily in Chapter 11 cases, a committee is appointed to represent the interests of unsecured creditors. A creditors’ committee can retain attorneys and other professionals at the debtor’s expense, which can significantly increase the cost of Chapter 11 reorganization. In a small business case, the bankruptcy court can order that no creditors’ committee be appointed.
Additional Filing and Reporting Duties in Chapter 11 Bankruptcy.
Small businesses are subject to some reporting and filing requirements that are not imposed on other Chapter 11 debtors. A small business debtor, for example, must attach its most recently prepared balance sheet, statement of operations, cash flow statement, and federal tax return to its bankruptcy petition when it files for Chapter 11 relief.
Additional U.S. Trustee Oversight in Chapter 11 Bankruptcy.
The United States Trustee’s office is the agency that oversees bankruptcy cases on behalf of the Department of Justice. Under the bankruptcy laws, small business cases are subject to more oversight by the U.S. Trustee’s office than other Chapter 11 proceedings.
Plan Deadline in Chapter 11 Bankruptcy.
Generally, there is no deadline for filing a Chapter 11 plan unless set by the bankruptcy court. In small business cases, however, the debtor has only 300 days to propose a Chapter 11 plan. The court can extend the 300-day deadline, but only if the debtor proves that it will be able to obtain approval of a plan within a reasonable period of time.
Longer Exclusive Period to Propose Plan in Chapter 11 Bankruptcy.
In some cases, creditors file competing Chapter 11 plans. Chapter 11 plans filed by creditors typically provide for the liquidation or takeover of the debtor’s assets and business. The debtor usually has the exclusive right for 120 days after it files bankruptcy to propose a Chapter 11 plan. In small business cases, the exclusivity period is extended to 180 days. The longer exclusivity period reduces the risk to the debtor of having to litigate competing plans and potentially losing its business.
Contact us today to speak to a qualified professional at The Reissman Law Group, P.A. to discuss your options for your business to restructure your debt and regain financial success.