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Basic Questions and Answers on Chapter 11 Bankruptcy (Small Business Reorganization) (Part 1)

Chapter 11 Bankruptcy (Small Business Reorganization)

When small businesses declare bankruptcy, most use Chapter 11 of the Bankruptcy Code. Many of these cases are filed and handled by attorneys who are not necessarily Chapter 11 specialists, but can be effective and efficient lawyers nonetheless. Argyle Publishing’s The Attorney’s Handbook on Small Business Reorganization Under Chapter 11 is written for these attorneys.  The 2012 version was just released in September, 2012.  From $45, it is an incredible value and a necessary addition to an practitioner’s collection.

QUESTIONS AND ANSWERS ABOUT CHAPTER 11 BANKRUPTCY

1. What is Chapter 11?
Chapter 11 is the chapter of the Bankruptcy Code that permits a person or business to reorganize while obtaining protection from its creditors. Chapter 11 of the Bankruptcy Code is entitled “Reorganization.” The Bankruptcy Code is the name given to that portion of the federal laws that deal with bankruptcy.

2. Who may file under Chapter 11?
Legally, anyone except a governmental agency, an estate, a nonbusiness trust, a stockbroker, a commodity broker, an insurance company, a bank, or an SBA-licensed small business investment company may file under Chapter 11. An individual may not file under Chapter 11 if he or she has had another bankruptcy case dismissed upon certain grounds within the last 180 days. As a practical matter, Chapter 11 is available to virtually any business or person able to afford the expenses of the case.

3. Are there any financial or insolvency requirements for filing under Chapter 11?
No. There are no financial or insolvency requirements for filing a voluntary Chapter 11 case other than the good faith requirement that the case be filed primarily for purposes of reorganization. A voluntary Chapter 11 debtor may be solvent or insolvent, its assets may exceed its liabilities by any amount (or vice versa), and its income may be substantial or nonexistent. The only financial restriction is the practical one of whether the cost of the case to the debtor is justified by the intended benefit. A voluntary Chapter 11 case is a Chapter 11 case filed by the debtor. An involuntary Chapter 11 case is a Chapter 11 case filed against the debtor by its creditors.

4. What is a debtor?
A debtor is a person or business concerning whom a case under the Bankruptcy Code has been commenced. A person or business who files a Chapter 11 case is referred to as a debtor. A debtor who qualifies may be treated as a small business debtor in a Chapter 11 case.

5. What is a small business debtor?
A small business debtor is a debtor who chooses to be treated as a small business debtor in a Chapter 11 case. To qualify as a small business debtor, a debtor must be engaged in a commercial or business activity (other than one whose primary activity is the business of owning or managing real property and activities incidental thereto) and the total amount of the debtor’s noncontingent liquidated secured and unsecured debts must not exceed $2,190,000 when the case is filed.

6. How does a debtor get to be treated as a small business debtor?
A qualifying debtor who checks the appropriate box on the Chapter 11 petition will be treated as a small business debtor unless and until the court orders otherwise.

7. What are the advantages of being treated as a small business debtor?
Being treated as a small business debtor expedites the handling of a Chapter 11 case by dispensing with the necessity of a creditor’s committee, by shortening the period for filing plans, and by simplifying the procedures for obtaining acceptance of a plan.

More information is available in the Attorney’s Handbook on Small Business Reorganization Under Chapter 11.

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