If you have commercial or business activities (other than primarily owning or operating real property) with total debts of $2,190,000 or less, you are a “small business debtor.” In a small business case, you must:

• submit the most recently prepared balance sheet;
• submit a statement of operations;
• submit a cash-flow statement;
• submit the most recently filed tax return or provide a sworn statement explaining the absence of such documents;
• attend court and the U.S. trustee meeting;
• make ongoing filings with the court concerning your profitability and projected cash receipts and disbursements;
• report whether you are in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure;
• report whether taxes have been paid and tax returns filed; and
• at the beginning of the case, attend an initial interview during which time the U.S. trustee will evaluate your viability, inquire about your business plan, and explain certain debtor obligations including the responsibility to file various reports.

As with cases under other Chapters of the Bankruptcy Code, a stay of creditor actions automatically goes into effect when the bankruptcy petition is filed. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. The filing of a petition, however, does not operate as a stay for certain types of actions. The stay provides you a breathing spell, during which time negotiations can take place to try to resolve your financial difficulties. Under specific circumstances, the secured creditor can obtain a court order granting relief from the automatic stay. For example, when you have no equity in the property and the property is not necessary for an effective reorganization, the secured creditor can seek a court order lifting the stay to permit the creditor to foreclose on the property, sell it, and apply the proceeds to the debt. The ordinary expenses of the ongoing business, however, still must be paid.

You (unless you are a “small business debtor”) have a 120-day period during which you have an exclusive right to file a plan. This exclusivity period may be extended or reduced by the court.  After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. A Chapter 11 case may continue for many years unless the court, the U.S. trustee, the committee, or another party in interest acts to ensure the case’s timely resolution. The creditors’ right to file a competing plan provides incentive for the debtor to file a plan within the exclusivity period and acts as a check on excessive delay.

You (or any plan proponent) must file and get court approval of a written disclosure statement before there can be a vote on the plan of reorganization. The disclosure statement must provide “adequate information” concerning your affairs to enable the holder of a claim or interest to make an informed judgment about the plan. In a small business case, however, the court may determine that the plan itself contains adequate information and that a separate disclosure statement is unnecessary. If and when you file the disclosure statement, the court must hold a hearing to determine whether it should be approved. Approval of a plan usually cannot be solicited until the court has first accepted the written disclosure statement.

Upon approval of a disclosure statement, the plan proponent must mail the following to the U.S. trustee, all creditors, and equity security holders:

• The plan, or a court approved summary of the plan
• The disclosure statement approved by the court
• Notice of the time within which acceptances and rejections of the plan may be filed
• Such other information as the court may direct, including any opinion of the court approving the disclosure statement or a court-approved summary of the opinion.  

In addition, you must mail to the creditors and equity security holders entitled to vote on the plan(s):

• Notice of the time fixed for filing objections
• Notice of the date and time for the hearing on confirmation of the plan
• A ballot for accepting or rejecting the plan
• If appropriate, a designation for the creditors to identify their preference among competing plans

(In a small business case, the court may conditionally approve a disclosure statement.)

In a Chapter 11 case, a liquidating plan is permissible. Such a plan often allows you to liquidate the business under more economically advantageous circumstances than a Chapter 7 liquidation. Be aware that it also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a Chapter 7 case.

Any interested party may file an objection to confirmation of a plan. The Bankruptcy Code requires the court, after giving notice, to hold a hearing on confirmation of a plan. If no objection to confirmation has been filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law. Before confirmation can be granted, the court must be satisfied that there has been compliance with all the other requirements set forth in the Bankruptcy Code, even in the absence of any objections. Confirmation of a plan discharges you from any debt that arose before the date of confirmation. After the plan is confirmed, you are required to make specified payments and are bound by the provisions of the plan. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts.

There are, of course, exceptions to the general rule that an order confirming a plan operates as a discharge. Confirmation of a plan of reorganization discharges any type of debtor-corporation, partnership, or individual-from most types of pre-petition debts. It does not, however, discharge an individual debtor from any debt made non-dischargeable by the Bankruptcy Code. Moreover, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments have been made under the plan. In case of a liquidation plan, confirmation does not discharge the debtor, unless the debtor is an individual. When you are filing as an individual, confirmation of a liquidation plan will usually result in a discharge (after plan payments are made).

As you see there are many subtleties to filing Chapter 11 bankruptcy. I’ve tried to give you a helpful overview of the issues involved in Chapter 11. Please feel free to contact me for more information: 303-955-7570, at help@cobankruptcyhelp.com, or fill out the free consultation form.