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Special Chapter 11 issues regarding small businesses

Sometimes, despite a business owner's best efforts, a small business ends up experiencing significant financial/debt problems. There are many different debt relief mechanisms a small business may have as options to try to address such struggles. This can include pursuing bankruptcy.

Chapter 11 bankruptcy is one of the bankruptcy options a small business may have. This type of bankruptcy has many complex rules and procedures. Additionally, small businesses can trigger some special issues when it comes to Chapter 11 bankruptcy.

This is because some small businesses are subject to a different set of procedures than other businesses when it comes to Chapter 11 bankruptcy. Specifically, there is a unique set of rules for "small business case" Chapter 11 bankruptcies.

The small business case rules vary from the traditional Chapter 11 rules in a range of different ways, including in regards to: the types of documents the debtor is required to submit upon filing for bankruptcy and during the bankruptcy case, deadlines, deadline extensions, the requirements placed on the debtor and the level of oversight given to the U.S. trustee.

Whether a given Chapter 11 bankruptcy case falls under the small business case rules depends on whether certain requirements are met.

For one, the business the bankruptcy involves has to meet certain requirements for these rules to be triggered. The business' non-contingent liquidated debts (including both secured and unsecured debts) must not total to more than $2,490,925. Also, the business has to be engaged in business/commercial activities. As a note, primarily operating/owning real property is not a qualifying business/commercial activity for this requirement.

Also, the bankruptcy case has to meet certain requirements for these special rules to apply. Specifically, there must have either not been a creditors' committee appointed in the case or been a court finding in the case that the creditors' committee that was appointed is not active and representative enough to serve an oversight role.

As these special rules underscore, things can be different for a small business when it comes to bankruptcy. Thus, when pursuing Chapter 11 bankruptcy or another bankruptcy type, it can be important for a small business to have the guidance of a bankruptcy attorney who understands the unique legal needs small businesses have in regards to bankruptcy.

Source: United States Courts, "Chapter 11 - Bankruptcy Basics," Accessed May 10, 2016

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