What is the ‘small business case’ under Chapter 11 bankruptcy?

| Nov 23, 2016 | Business & Commercial Bankruptcy |

Chapter 11 bankruptcy is an important legal mechanism that allows a New York business to keep its doors open while reducing its outstanding debts. In some cases, individuals can use it to eliminate their financial obligations, but, by and large, it is a process utilized by business entities. Large corporations use it frequently, but it can also be employed by small businesses.

During the Chapter 11 bankruptcy process, a business is assigned a bankruptcy trustee and that trustee appoints a creditors’ committee that oversees the business’s plan for profitability. However, in some cases, trustees of small businesses cases are unable to find creditors to serve in such a capacity. When this situation arises, then the matter may become a small business case.

To have a small business case under Chapter 11 bankruptcy, two conditions must be present. First, the business’s debts must total or be less than $2,490,925. Second, the trustee must not be able to create a committee or the created committee must be of such an organization that it will not actively offer oversight of the small business’s reorganization plan.

If a small business case is created, then the business will find itself with more work to do than it otherwise would have in a normal case. Without the committee providing oversight of the reorganization and profitability process, the business must provide accounting reports to the trustee and bankruptcy court to demonstrate that it is working to reduce its debts and emerge from the process on strong financial footing.

The small business case is an important nuance in the overall spectrum of requirements for a Chapter 11 business bankruptcy case. Individuals who own small businesses and who are considering filing for Chapter 11 bankruptcy are encouraged to discuss their questions with their bankruptcy attorneys.

Source: uscourts.gov, “Chapter 11 – Bankruptcy Basics,” accessed November 21, 2016

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