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In this article, you will learn:

  • The long-term relief offered by bankruptcy
  • The advantages of being treated as a small business debtor
  • The requirements and restrictions when filing for bankruptcy

Concerning Chapter 11 bankruptcy, the possibilities for long-term relief will depend on whether you are an individual or a business. If you are an individual, you will be able to create a plan like in Chapter 13. But some debtors will have too much debt or too much income to qualify for that Chapter 13. That is why certain debtors end up in Chapter 11. In that case, as an individual debtor, if you can create a plan that will satisfy all of those rules that are outlined in Chapter 11, you receive a discharge at the end just like you would in Chapter 13 and similar to what you would in Chapter 7.

For a business, the answer varies. It depends on whether the business debtor goes through a standard Chapter 11 or small business (Subchapter V) Chapter 11. For a standard Chapter 11, without full payment of creditors under the plan, the owners won’t be able to keep their ownership. So, this means part of the plan may entail turning over the company to the creditors.

For small to medium-sized businesses, the Small Business Reorganization Act (Subchapter V) changes that dynamic and allows the business the opportunity to obtain a discharge just like you might in Chapter 13 or Chapter 7 but the owners are able to maintain their equity in the company, unlike the typically Chapter 11. So, those small business owners can go through the process, remove excess debt, restructure the financial situation for the company to remove some of that debt, and then come out the other side with a discharge of all other debt not paid under the plan and keep their equity. This presents a significant benefit to business owners who rely on that business for their income and their families’ wellbeing.

Are There Any Restrictions On The Size Or Type Of Business That Can File Under A Chapter 11 Bankruptcy?

Like most questions concerning Chapter 11, the possible restrictions depend on whether we are talking about a traditional Chapter 11 or a Chapter 11 under subsection V (the “SBRA”). In a conventional Chapter 11, there are no significant restrictions on the size or type of business that may file. Under the SBRA, however, there are. Publicly traded companies and their subsidiaries are generally not going to be able to get to pursue relief under subchapter V. There is a cap of $7.5 million right now for subchapter V debtors to meet, there has to be an operating business of some kind for subchapter V relief, and the debt that will be discharged has to be at least half business-related to qualify for that subchapter V which is not necessarily true for a regular Chapter 11.

What Are The Advantages Of Being Treated As A Small Business Debtor?

There are significant advantages to being treated as a small business debtor, at least for a small business debtor under subchapter V. This includes things like getting rid of the absolute priority rule, which requires that all creditors be repaid in full before the owners get to keep their equity. In addition, there are no quarterly trustee fees due to the trustee. Subchapter V also provides for a new type of trustee whose job is to help negotiate a consensual plan between the debtor and creditors. There are also several other real cost-saving and time-saving benefits that you get from the subchapter V small business debtor bankruptcy that we don’t see historically, such as a 90-day requirement to file a plan and the fact that only the debtor can file a plan, not the creditors.

Are There Any Financial Or Insolvency Requirements For Filing Under Chapter 11 Bankruptcy?

The only real financial or insolvency requirements for filing under Chapter 11 bankruptcy are that the debtor is having trouble meeting its obligations, or the debtor can foresee that there will be a point where it cannot meet its debt. So, there are no strict rules requiring a debtor to have more liabilities than assets or that your debts coming due have to be greater than your cash. There simply needs to be some arguable point where the business is not going to be able to keep operating in the same way with its expected cash flow.

For more information on Long Term Relief Under Chapter 11 Bankruptcy, an initial consultation is your next best step. Get the information and legal answers you seek by calling (205) 506-3354 today.

John W. Clark IV

Call Us Now For A Personalized Case Evaluation
(205) 506-3354