Chapter 11 Bankruptcy is intended primarily for the reorganization of businesses with larger debt, and is most often associated with corporations. However, Chapter 11 Bankruptcy is available to small businesses as well.
Chapter 11 allows the company to propose a plan for profitability post-bankruptcy, which may include trimming costs and seeking new sources of revenue, or income, while keeping creditors at bay. While Chapter 11 Bankruptcy has certain advantages for those that qualify, including more time to file a plan and the opportunity to reorganize, it is more time-consuming and costly than other types of bankruptcy.
Although Chapter 11 Bankruptcy reorganization is most commonly associated with larger corporations, it is available to small businesses. A “small business” is defined by the Small Business Administration as, “one with fewer than 500 employees.” Therefore, small businesses make up the vast majority of Chapter 11 Bankruptcy filings.
However, Chapter 11 Bankruptcies often get dismissed and converted to Chapter 7 Bankruptcy filings. This occurs because the court determines the business has little or no chance of becoming profitable after the bankruptcy is complete.
According to the U.S. Bankruptcy Code, a “small business debtor” is an individual engaged in business activities, which has debts totaling $2.19 million or less at the time of petition. “Single asset real estate cases” under Chapter 11 involve debtors with non-residential property having less than four residential units that generate nearly all of the debtor’s income. Those whose primary business is owning and operating real property are not eligible.
Bankruptcy court exerts greater oversight of small business Chapter 11 filings than for larger entities, including the requirement to report on its profitability, projected cash receipts and disbursements. In addition, the court appoints a U.S. trustee to oversee each case.
After spending many years developing and trying to maintain your small business, declaring bankruptcy was probably not what you had in mind. To make the right decisions regarding bankruptcy, and to help ensure the safety of your assets, contact the Law Office of Brian R. Lewis, where you will receive a fee initial consultation for filing bankruptcy.