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How is Chapter 11 Different for Small Businesses?

Unlike Chapter 11 bankruptcy cases that involve medium to large businesses, the U.S. Trustee is more involved in overseeing the case with a small business Chapter 11.  Early on, the debtor must attend an initial interview where the trustee evaluates the small business's viability, the debtor's business plan, and the debtor's responsibility to file certain reports.  A major concern in the trustee's oversight is determining whether the small business debtor can confirm a plan.

Small business Chapter 11 bankruptcies have different deadlines.  A debtor has an exclusive right to file a plan during which time no other parties may file opposing plans.  The terminology for this right is exclusivity.  The small business debtor's deadline to file an exclusivity plan is during the first 180 days of the case.  Courts do not offer extensions as liberally in small business cases as they do on larger business cases.  Maximum extension periods can only extend to 300 days.  Also, for extensions, the debtor must show by a preponderance of evidence the court’s ability to confirm the plan within a reasonable time period.  In contrast, larger businesses may extend for cause (based on request) exclusivity periods up to 18 months.

What constitutes a small business case for Chapter 11?

Title 11 U.S.C. § 101(51C) (http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter11.aspx) defines a small business case as—

  • A debtor engaged in commercial or business activities with total non-contingent liquidated secured and unsecured debts of $2,343,300 or less
  • A case in which the U.S. trustee has not appointed a creditor's committee, or the court has determined the creditors' committee is insufficiently active and representative to provide oversight of the debtor

While small business Chapter 11 cases resolve much more quickly than cases involving larger businesses, they must also meet more challenges.

If you are a small business debtor considering Chapter 11, a skilled bankruptcy lawyer can help you make the right decisions.

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