Chapter 11 bankruptcies are excellent tools available to both small business debtors and other consumer debtors. They offer relief from unmanageable debt to those who qualify. However, the procedure does not treat all groups of debtors equally, and offers a number of advantages to small business debtors over others. Depending on the nature of the bankruptcy and the small business, Chapter 11 offers several distinct advantages, streamlining the process and usually reducing the overall costs.
On of the most important advantages that a small business debtor may enjoy is oversight of the proposal, refinement and implementation of a repayment plan by the US Trustee rather than by a creditors’ committee. While this is an advantage that comes at the cost of increased scrutiny from a government entity, it allows debtors to propose and refine repayment plans that are primarily beneficial to their needs.
Should the same small business debtor attempt a Chapter 11 discharge with a creditors’ committee instead, they face the prospect of their own biggest creditors influencing the terms of the repayment plan. In many cases, it is far preferable for a small business debtor to submit to the additional scrutiny of the US Trustee and maintain the ability to somewhat control the terms of the repayment plan than give away much of that power to the very creditors driving it to bankruptcy in the first place.
This advantage is, however, limited. In most cases, the debtor is granted a period of 180 days to propose a repayment plan and have it accepted before a creditors’ committee may step in and influence the process. It is also possible to extend this period to 300 days in some instances.
Small business debtors are unlikely to navigate a Chapter 11 bankruptcy well without professional guidance. These procedures are very complex and rigid, and any misguided deviations from the prescribed process may undo the procedure and only make matters worse. If you are considering Chapter 11 as a small business debtor, be mindful to seek out the professional guidance you need to fully complete the process and protect your interests.
Source: The Balance, “Small Business Bankruptcy in Chapter 11,” Carron Armstrong, accessed Dec. 29, 2017