Chapter 11 bankruptcy for small business owners makes up a portion of the United States Bankruptcy code. Often, it appears throughout the media when major corporations struggle with financial problems that force them to turn to bankruptcy courts for assistance. However, it's worth recognizing that the majority of chapter 11 cases are filed by companies and businesses that are small and lesser known.

Under Chapter 11, it is possible for debtors to have their finances restructured through a process that is approved by the court of bankruptcy. Through the modification of payment terms and the reduction of obligations, the bankruptcy plan can help business owners to balance their expenses and income, therefore allowing them to continue operation and regain profitability. What's more, under Chapter 11, debtors may also be allowed to sell a portion of their assets in paying for what they owe.

Some small businesses shy away from Chapter 11, because they recognize it as risky, expensive, and time-consuming. However, it can be the only solution for bankruptcy for small business for those that are seeking to continue operating, particularly if they are owned by a corporation, limited liability company, or partnership.

Provisions For Small Business Owners In Chapter 11 Cases

For the most part, major corporations and small businesses must follow the same rules in reorganizing under Chapter 11. However, it's worth noting that there are some special provisions available that can help small business owners navigate through the process. For example, the no creditor's committee means that a small business doesn't have to deal with the stress of an appointed committee hired to represent the interests of unsecure creditors. Often, this committee can significantly increase the cost of reorganization, meaning that its absence will prove to be beneficial to the debtor.

Another special provision of Chapter 11 cases is that small businesses are frequently subject to filing and reporting requirements that wouldn't be imposed on other Chapter 11 debtors. For instance, a small business owner must attach his statement of operations, recently prepared balance sheet, federal tax return, and cash flow statement.

Generally, no deadline is given when it comes to filing such a bankruptcy plan, unless that deadline is set by the court. However, in small business cases, it's worth recognizing that the debtor will only be given a maximum of three hundred days in which to propose a plan. Although the court has the right to extend the 300 day deadline if necessary, this is only possible if the debtor has proven that he can obtain an approved plan within a period of time considered to be "reasonable".

What's more, in typical Chapter 11 bankruptcy for small business matters, the debtor is required to prepare a disclose statement and submit that statement to the bankruptcy court for approval – circulating copies to other parties of interest, such as creditors. These statements much provide information about the proposed plan and debtor, and are often quite expensive to prepare. In cases of small business owners, it is possible to waive the statement requirement, which can significantly reduce legal costs.