Small Businesses and Chapter 11 Bankruptcy

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Commonly referred to as a “reorganization” bankruptcy, chapter 11 cases require debtors to submit a comprehensive plan and pay creditors over time. As a result, corporations and partnerships typically retain control over their businesses. Although many chapter 11 cases involve large corporations operating in the United States, many small business debtors qualify for chapter 11, although under slightly different terms.

After determining that a debtor qualifies as a “small business case,” the U.S. trustee will ask the debtor to submit documents such as balance sheets, tax returns, cash flow statements, and statements of operations. Unlike larger chapter 11 debtors, however, small businesses must attend an initial interview with a U.S. trustee. During the interview, debtors must explain their business plans and learn about their filing and reporting responsibilities. In general, small business cases conclude much more quickly than other chapter 11 cases, due in large part to the difficulty of obtaining filing deadline extensions.