Small Business Bankruptcy Procedures
Small Business Bankruptcy
If your small business is facing Chapter 11 bankruptcy, you need to understand how the process works. (By the way, we only recommend filing Chapter 11 small business bankruptcy if you have at least $50,000 in cash available to pay legal fees. If not, consider other small business bankruptcy alternatives.)
The Small Business Bankruptcy Procedure
- Decide to if you will file either Chapter 11 (reorganization) or Chapter 7 (liquidation) small business bankruptcy. Consult with your lawyer on the filing that makes sense for you and your firm.
- If you decide to file Chapter 7 bankruptcy, then all you have to do is file and then walk away. Your involvement with your small business is over. The court will appoint a trustee to handle the liquidation.
(All following items refer to Chapter 11 proceedings.)
- If you decide on Chapter 11, you need to work closely with your lawyer to file for small business bankruptcy. You will have to prepare several documents for the court and the US trustee. These documents include a list of creditors and the amounts you owe, your current financial statements and a list of assets and property held by your company.
- The US trustee will call you to a 341 meeting where you will be asked under oath about the company’s financial condition, prospects and past actions of the management team. (This is normally the most stressful part of the bankruptcy for the management team. The environment can be hostile and you must tell the truth, which may include revealing secrets about your company’s strategy.)
- You can reject or keep your current contracts with some exceptions.
- You will create a plan to reorganize and restructure your balance sheet. In most Chapter 11 small business bankruptcies, the creditors own the company. The equity holders are usually wiped out or given a small ownership percentage.
- Your creditors and equity holders vote on your plan.
- If it is accepted, a new company emerges controlled by the creditors.
- If the plan is not accepted, then you can present a new one or the creditors can present a plan of their own.
- If stakeholders cannot agree on a common plan, the judge can cram down a plan to everyone based on his or her discretion.
Overall, insolvency is a stressful and difficult time on any business leader. We recommend that you avoid bankruptcy if possible. To learn about ways to avoid filing, see small business bankruptcy alternatives.
Legal Disclosures & Website Terms of Use & Privacy Policy