Chapter 11 - Reorganization Under the Bankruptcy Code

We handle two kinds of smaller Chapter 11 cases. First, there is the "small business case" is somewhat easier than a regular business Chapter 11 bankruptcy case with protections for smaller businesses that allows them to discharge some debt but continue operating. Second, there is the "small business debtor." 11 U.S.C. § 101(51D). A “Small Business Debtor” is a person, partnership or corporation engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate non-contingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor;

In a small business case, the debtor must, among other things, attach the most recently prepared balance sheet, statement of operations, cash-flow statement and most recently filed tax return to the petition or provide a statement under oath explaining the absence of such documents and must attend court and the U.S. trustee meeting through senior management personnel and counsel. The small business debtor must make ongoing filings with the court concerning its profitability and projected cash receipts and disbursements, and must report whether it is in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and whether it has paid its taxes and filed its tax returns. 11 U.S.C. §§ 308, 1116.

In contrast to other chapter 11 debtors, the small business debtor is subject to additional oversight by the U.S. trustee. Early in the case, the small business debtor must attend an "initial interview" with the U.S. trustee at which time the U.S. trustee will evaluate the debtor's viability, inquire about the debtor's business plan, and explain certain debtor obligations including the debtor's responsibility to file various reports. 28 U.S.C. § 586(a)(7). The U.S. trustee will also monitor the activities of the small business debtor during the case to identify as promptly as possible whether the debtor will be unable to confirm a plan.

Because certain filing deadlines are different and extensions are more difficult to obtain, a case designated as a small business case normally proceeds more quickly than other chapter 11 cases. For example, only the debtor may file a plan during the first 180 days of a small business case. 11 U.S.C. § 1121(e). The debtor must file a plan during the first 90 days of a “small business debtor” case. 11 U.S.C. § 1189(b). Additionally, a “small business debtor” may be able to reduce the mortgage on their residence under certain circumstances. 11 U.S.C. § 1190(3).

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Chapter 11 - Reorganization Under the Bankruptcy Code

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