Small Business Debt Organization – Chapter 11 or Chapter 13
If you are facing financial challenges with your small business, but believe that the enterprise can be saved, a bankruptcy filing that allows you to restructure or renegotiate your debt can help you accomplish your objectives. With small business debt, you have two options—a Chapter 13 filing (for sole proprietors only) or a Chapter 11 filing (for corporations or limited liability companies). The petitions are similar, both allowing the business to propose new payment arrangements, retain property and reduce the amount owed. As a practical matter, Chapter 13 is typically less expensive, simpler, less risky and less time-consuming than a Chapter 11. Contact a bankruptcy attorney for help.
The Differences between Chapter13 and Chapter 11 for Small Businesses
Chapter 13 reorganization is only available to businesses that are set up as sole proprietorships. There are also restrictions on the amount of debt that can be restructured in a Chapter 13. You can’t have more than $394,725 in unsecured debt and $1,184,200 in secured debt. Any business or business owner can file for protection under Chapter 11, regardless of the amount of debt.
In a Chapter 13 bankruptcy petition, a trustee will always be appointed. That’s not the cases with a Chapter 11, where the appointment of a trustee is the exception, not the rule. The bankruptcy court usually appoints a trustee in a Chapter 11 filing only if there has been mismanagement or fraud.
With a Chapter 11 petition, you can propose a plan that calls for repayment over any length of time, or orderly sale of some or all business assets. A Disclosure Statement detailing and supporting the Plan must be prepared and approved, then the Plan needs to be submitted to creditors for voting and then approved by the court at a confirmation hearing. This plan needs to meet certain technical requirements, and has to be voted on and approved by at least 50% of the voting unsecured creditors holding at least 2/3 of the total dollar value of claims. Success requires resolving disputes with the largest and most important creditors to get them on board. If this cannot be achieved, the chances of success diminish.
In Chapter 11 and Chapter 13, the business operations are subject to court supervision and regularly operating reports. It opens up the business books to review by creditors or the United States Trustee. The costs include not only legal fees, but also accounting fees and US Trustee quarterly fees.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, our bankruptcy lawyers provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another bankruptcy attorney. Evening and weekend appointments are available upon request.