Chapter 11 for Small Businesses

Chapter 11 for Small Businesses

Although Chapter 11 bankruptcy reorganization is commonly associated with larger corporations, filing a Chapter 11 for small businesses is available for qualifying businesses. According to the Small Business Administration, a  “small business” is one with fewer than 500 employees.  Consequently, these “small businesses” make up majority of Chapter 11 bankruptcy cases. In some instances such cases don’t remain a Chapter 11. Chapter 11 for small businesses generally get dismissed and are converted to a Chapter 7 because the Court believes that they will not be profitable in the long run.  Partnerships may only may file for Chapter 11 if the business entity can demonstrate that it has a chance of regaining financial health.

According to the U.S. Bankruptcy Code, a “small business debtor” is an individual engaged in business activities which has total debts of $2.19 million or less at the time of the 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. Small businesses have to include the following document in the Chapter 11 bankruptcy petition:

  • Cash-flow statement
  • Copy of the most recent federal income tax return
  • Copy of the business entity’s most recent balance sheet
  • Statement of operations

The bankruptcy court will appoint a Trustee to oversee the case. Chapter 11 for small business bankruptcy is scrutinized significantly more by the Court compared to larger entities, particularly its requirement to report on projected cash receipts and disbursements and its profitability .

While Chapter 11 gives  small businesses the advantage of additional time to file a plan and revamp terms with creditors (180 days for a Chapter 11 compared to  15 days for Chapter 7), it also has its disadvantages. Chapter 11 for small businesses cost tens of thousands of dollars in legal fees, which may be impossible for a struggling small business. If the end result of the bankruptcy protection proves to be successful, though, these costs are offset by the ultimate reward of regaining profitability. It’s best not to engage in guess work when considering a Chapter 11 for small businesses. Our experienced lawyers at will see you through the bankruptcy process. For those businesses who wish to avoid filing bankruptcy, they are alternate debt relief strategies available. We have also assisted many small businesses with:

Merchant Cash Advance Default

SBA Loan Default

Small Business Debt