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Common Concerns & Questions About Bankruptcy

Chapter 11 bankruptcy and the small business debtor

| Sep 19, 2019 | Chapter 11 |

Many small businesses in Texas end up falling on hard financial times. Although some of these businesses are able to revamp their marketing tactics, delve into new markets, and expand into new product lines, others are unsuccessful in their efforts to do so. The businesses that fall into this latter category often need financial relief in order survive. They may be able to secure additional loans to help pay off some existing debts, but this strategy can leave a business spiraling deeper into a hole of debt.

These businesses should carefully consider whether Chapter 11 bankruptcy is right for them. Businesses that have less than approximately $2.6 million in debt and have not had a creditors’ committee appointed to their bankruptcy case by the bankruptcy trustee may qualify as a small business debtor. A small business debtor must undergo an initial interview with the trustee to ensure that the petitioner’s business plan is viable and will allow it to successfully meet federal requirements.

Even though a small business debtor isn’t subjected to the scrutiny often imposed on businesses by creditor committees, they must still make significant filings with the court to show its progress toward satisfying the bankruptcy plan. This means tracking and filing balance sheets, statements pertaining to business operations, and documentation of the business’s cash flow. The bankruptcy court will also expect the small business debtor to demonstrate its profitability and its compliance with the bankruptcy code.

Securing the debt relief needed can be challenging for many small businesses. Although Chapter 11 relief may be available, it is contingent upon compliance with bankruptcy laws as well as developing and sticking with a business plan that works. Navigating the process can be confusing and complicated, which is why experienced bankruptcy law professionals stand ready to help.