What You Need To Know About Chapter 11 Bankruptcy
Chapter 11 bankruptcy is always used when prolific corporations such as the United Airlines, General Motors and K-Mart are experiencing financial crisis and they seek help from the bankruptcy courts. However, small businesses usually file for the Chapter 11 bankruptcy.
Sole proprietorships can simply file for bankruptcy under chapter 13 when the owner wants to reorganize debt and still stay in business. However, when it is a partnership then the best option is to file for bankruptcy under chapter 11.
Under Chapter 11, a debtor can review and rebuild their financial crisis using a plan for reorganization and debt repayment that is approved by the court. The schedule, just like in the case of individual bankruptcy in chapter 13 must be approved by the bankruptcy court.
By managing obligations and restructuring the payment agreement, a Chapter 11 structure is quite beneficial to a debtor as it can help them get their business back on its feet and regain its profitability. This is designed to give the debtor a chance to continue running their business and start repaying what they owe.
The bankruptcy Chapter 11 allows a debtor the freedom to sell a portion or all of the assets to downsize its venture whenever necessary to pay the claims owed by the debtor.
Special provisions for small ventures in Chapter 11
Small ventures have to follow the same procedures that major corporations observe in addition to the set reorganization requirements in Chapter 11 bankruptcy. Small ventures can enjoy special treatment, for example, special provisions that are aimed at helping them to fast-track processes in Chapter 11 as well as reduce legal and other expenses that may arise from restructuring.
Under the Chapter 11 bankruptcy Utah, a small venture that is in debt is filed under the small business case. A small business debtor is considered a person or entity who:
- Is involved in one or more commercial activities for business
- Owes total claims not exceeding 2,490,925 USD. Note that this is not inclusive of obligations that may be owed to family members, friends or even business partners
No creditors’ committee for small businesses
The no creditors committee is formed so that it can represent the interests of the lenders who lent the business unsecured loans. Your Chapter 11 bankruptcy attorney will tell you this when you come to us for assistance. If there is any need to retain the services of a bankruptcy attorney, this committee is going to do that but at the expense of the debtors.
Chapter 11 attorneys are usually keen on the planned deadline that does not necessarily have a filing deadline for a Chapter 11 bankruptcy, unless the bankruptcy court issues one. In the case of small businesses, a 300 hundred days deadline is issued against the debtor so that they can talk with their attorney and come up with a good Chapter 11 plan. The court can stretch the 300-day deadline if the debtor can prove that they are able to obtain an approval plan within a given time.
The additional trustee oversight, additional filing and reporting duties
The Chapter 11 bankruptcy Utah allows an additional US trustee oversight that represents the Justice Department for monitoring bankruptcy cases. By observing the set bankruptcy laws, small business ventures can be protected by the court trustee and they receive better oversight as opposed to other Chapter 11 proceedings. On the other hand, small business ventures are subjected to filing requirements and reporting that are usually not imposed on other debtors of Chapter 11.
In this regard, a small business debtor is required to attach a number of things such as:
- Comprehensive and updated balance sheet
- Federal tax return
- Statement operations
- Cash flow statement
Note that the federal tax return form must outline its bankruptcy petition in order to be granted the Chapter 11 relief.
The no disclosure statement
Normally, Chapter 11 dictates that the debtor must be in a position to prepare a comprehensive statement of disclosure and file it at the bankruptcy court in order to gain approval. In addition, debtors are required to give creditors a disclosure statement.
Disclosure statements provided in Chapter 11 cases are usually structured in the same concept as the stock offerings prospectus. Disclosure statements must have comprehensive information about the debtor and the proposed repayment plan. Note that these statements are usually expensive to prepare.
Thankfully, a bankruptcy court may decide to do away with the disclosure statement requirement, which can go a long way in expediting the process of reorganization and counter additional costs.
In some instances, the creditor may decide to file for Chapter 11 bankruptcy and in such an instance, the creditor provides a comprehensive takeover or liquidation or of all the assets owned by the debtor. In this case, the debtor is usually accorded 120 days from the day they file for bankruptcy to consider a Chapter 11 plan.
My name is Craig R. Chlarson. Whether you are seeking to eliminate your debt, typically through a chapter 7 filing, or whether you are seeking to reorganize your debt, typically through a chapter 13 filing, or even if you have basic bankruptcy questions, call me today. I can help you.
To schedule an appointment, call (435) 901-3449
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