Small Business Chapter 11

Chapter 11 bankruptcy can help small businesses, and individuals.

There is a debt limit, a maximum amount that can be owed by an individual debtor to still be able to file Chapter 13 bankruptcy.

This post will discuss some aspects of small business chapter 11 bankruptcies.

I frequently tell the operators of small businesses who call, that the sand dune is built one grain of sand at a time. Debt for a small business, just like for an individual, usually builds up over time rather than in one disaster.

Sometimes, the bad guy partner or employee has been stealing small amounts that add up to a problem before being discovered, of course, after the money and the bad guy are long gone.

Sometimes a key customer has filed its own bankruptcy case, and the small business owner does not get paid.

A corporation or partnership cannot file a Chapter 13 case, so if you want to stay in business, Chapter 11 is the way to go.

Frankly, I initially try to talk most clients into pulling the plug.

My questions for them, is the business making money now? If not, why will things change?

If you started a business, of course you thought it would make money. Do you have solid sales numbers, or other information, that shows the business is turning around?

Looking back one, three, however many years ago since the business was profitable, if I told you that you would be as far in the red as you are now, if you stayed in business, would you have?

Is it time to stop the bleeding?

Make no mistake, Chapter 11 is an expensive, and time consuming proposition.

If you are operating the business, you will have to take considerable time away in the first month to deal with preparing the schedules, changing bank accounts, filing the monthly financial reports with the court, an appearance with the United States Trustee, and the 341 hearing, also called creditors’ meeting, and many Judges have an additional date for you to appear to tell them about the case.

Most Chapter 11s fail, that is, they are dismissed or converted to Chapter 7.

Chapter 11 does allow you to remain in control of your business, you are the debtor in possession, effectively your own trustee.

You have 120 days, or more, to file a plan, as opposed to 15 days in a Chapter 13.

There is no 5 year limit on a plan, as in Chapter 13.