Sam Brotman, JD, LLM, MBA December 16, 2013 3 min read

Small Business Owner Bankruptcy Cases

In small business owner cases, the debtor may not be required to file a separate disclosure statement, provided that the “court determines that adequate information is contained in the [reorganization] plan” (“Bankruptcy Basics, p. 30). With this in mind, small business bankruptcy cases are treated differently than regular bankruptcy cases.

For example, to determine the classification of small business debtor, the debtor must pass a two-part test. The first part of the test requires the small business debtor to be “engaged in commercial or business activities (other than primarily owning or operating real property)” (p. 32). The non-contingent liquidated secured and unsecured debts must not exceed $2,343,300. For the second part of the test, the small business debtor’s case must not have reached the point where a creditors’ committee has been appointed “or the court has determined [that] the creditors’ committee is insufficiently active and representative to provide oversight of the debtor” (p. 32).

The small business debtor is required to submit with the petition a recently prepared balance sheet, a statement of operations, a cash flow statement, and the most recently filed tax return. The debtor is also required to submit a “statement under oath explaining the absence of such documents and must attend court and the U.S. trustee meeting through senior management personnel and counsel” (p. 32). To meet ongoing filing requirements, the small business debtor must report information concerning the company’s “profitability and projected cash receipts and disbursements, and must report whether it is in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and whether it has paid its taxes and filed its tax returns” (p. 33).

The small business debtor is also subject to oversight by the U.S. trustee. For example, the small business debtor must attend an initial interview with the U.S. trustee (p. 33). The trustee will “evaluate the debtor’s viability, inquire about the debtor’s business plan, and explain certain debtor obligations including the debtor’s responsibility to file various reports” (p. 33). The trustee continues to monitor the activities of the small business debtor to determine confirmation of the plan.

The small business debtor under chapter 11 will file a reorganization plan within 120 days of filing the petition. The court may grant extensions up to 18 months after the petition date (p. 39).

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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