There are certain terms and parts of a Chapter 11 filing that might be difficult to understand. An important part of a Chapter 11 case is the determination of how the business should be classified and if it is a small business and a small business debtor.
When the U.S. trustee cannot locate creditors who will serve on the creditors’ committee or the committee will not be part of the case, there is a possibility that the bankruptcy will be a small business case and have different ways in which it will be handled. If the case is a small business and it is a small business debtor, it must meet two separate criteria. It must be in a commercial or business activity in which the unsecured debts and non-contingent liquidated secured debt is $2,566,050 or less. Next, the U.S. trustee must not have appointed a creditors’ committee or the court has decided that there is not sufficient activity on the part of the committee to have oversight on the debtor.
With a small business Chapter 11, a recently prepared balance sheet must be provided by the debtor in possession. Also, there must be a cash-flow statement, a statement of operations, and a recently filed tax return. Without these documents, there must be a statement provided – under oath – as to why they are not available. There will be a meeting with the court and the U.S. trustee. Projected cash receipts and profitability must be given to the court in ongoing filings.
For a small business debtor, there will be extra oversight from the U.S. trustee. The trustee is important in a small business case as there will be an interview with evaluation of the debtor, questions about the plan, and the trustee will make certain obligations clear to the debtor. A small business case will often go faster than a conventional Chapter 11.
Chapter 11 bankruptcy is not limited to larger businesses. Smaller businesses can also use Chapter 11, but it is imperative to understand the different rules and requirements for a small business Chapter 11. Having legal assistance from an attorney who understands business bankruptcy is a wise step for businesses of any size.
Source: uscourts.gov, “Chapter 11 — Bankruptcy Basics — The Small Business Case and the Small Business Debtor,” accessed on Jan. 8, 2018