When a business, usually a corporation, files bankruptcy it must state whether it is a small business debtor. Most people think of small business meaning the number of employees or the total revenue, but in bankruptcy, it is based on how much debt you have. If your business has less than $2,343,300 in noncontingent liquidated debt, then you are a small business debtor.
Before we get to what it means to be a small business debtor, I’ll clear up the definitions of noncontingent and liquidated. A debt is contingent if liability is based on some future event. For example, if there is a $100,000 penalty for failing to complete a project by June 15, 2011 and it is only February 14, 2011, then that $100,000 penalty is contingent. A liquidated debt is one where the amount due is unknown and cannot be readily determined. For example, if someone files a lawsuit against your business on Monday and you filed bankruptcy on Tuesday, then the debt on the lawsuit is not liquidated.
A small business debtor is subject to additional requirements and a tighter schedule in chapter 11. First, at the same time a small debtor files its petition, it must also file a balance sheet, statement of operations, cash-flow statement, and most recent federal tax return. This is not a big hurdle. These are all materials that your bankruptcy lawyer collects from you, while preparing the petition. If you do not have or regularly keep any of those items, you may simply file a declaration to that effect.
The time line for filing a plan and disclosure statement are also different for small business debtors. First, the exclusivity period is 180 days. During the exclusivity period, only the debtor may file a chapter 11 plan. This is helpful, because it gives both you and your bankruptcy attorney time to prepare a plan without creditors trying to file competing plans.
On the other hand, you must have a plan filed within 300 days. It is possible to extend that deadline, but you have to be able to show that a confirmable plan will be confirmed in a reasonable time. This may make it difficult, if your plan is based on an the result of some other litigation. That said, as long as your bankruptcy lawyer in Seattle, is keeping the court and the US Trustee up to speed, it will make an extension of that deadline easier.
The reality for most debtors is that even though they are classified as “small business debtors” the bankruptcy process really won’t change all that much for them. In most cases – except for the very large complex chapter 11 cases – you’ll know if you can reorganize within a couple of months. Generally, there is a reason that your business had to file bankruptcy. If your bankruptcy lawyer cannot find a resolution to the problems that led to your filing within a couple of months, you will not be able to confirm a chapter 11 plan. For that reason you need to make sure that you select the best possible business bankruptcy lawyer.