Is Chapter 11 Bankruptcy Right for My Business?

Closing down sale sign on shop windowWhen your business runs into financial troubles, you can file bankruptcy just as you would for an individual. As a business owner, you can file Chapter 7, Chapter 13, or Chapter 11 on behalf of your business. Today we’re focusing on Chapter 11 bankruptcy.

What Is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy has more in common with Chapter 13 bankruptcy as opposed to Chapter 7. Chapter 11 acts a reorganization of debts and payments.

Chapter 11 bankruptcy is the only form available to businesses owned by a limited liability company, a corporation, or a partnership. Individual owners commonly have more options. Also, Chapter 11 may be the only option for businesses that do not meet the financial requirements of Chapter 13. Chapter 13 places a limit on the amount of debt a business can have to be eligible.

Differences for Small Business Debtors

In most cases, small businesses and large corporations have to follow the same Chapter 11 rules, but in some “small business debtor” cases, there are special provisions that should fast track the process. To qualify as a small business debtor, your business must not have more than $2,490,925 in debt, excluding any money owed to family members or business partners.

Some of the differences in Chapter 11 small business bankruptcy cases include:

  • A Deadline – Normally, Chapter 11 cases do not require the business owner to provide a deadline plan, but in small business cases, you have 300 days to get a plan approved.
  • No Committee – In typical Chapter 11 cases, a committee is appointed to represent the creditors interests.
  • More Oversight – As a trade-off for not having a creditor committee, a small business debtor case will have more oversight from the bankruptcy trustee.
  • Longer Exclusivity – In most Chapter 11 cases, you have only 120 days of exclusivity after filing bankruptcy, but you get 180 in small business cases. This means that there is less risk of creditors proposing their own bankruptcy plans, which usually involve liquidation or take overs of your company.
  • No Disclosure – disclosure statements are required in other Chapter 11 cases. They are usually expensive to get right and take time. Small business debtors do not have to prepare one.

Chapter 11 bankruptcy is not right for every situation, but can be a huge help for many. Talk to a business bankruptcy attorney to find out if Chapter 11 bankruptcy is your best option, or if there are better solutions out there.



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