Chapter 11 Bankruptcy and Small Business Reorganization

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Work with a Debt Relief Lawyer from Meredith Law Firm

We are a debt relief agency that works with small, local businesses in South Carolina. Chapter 11 cases vary in complexity based on the nature of the business, its legal structure, and the amount and types of debt owed by the entity. Given that information, it is best to consult with a professional.

We will meet with you to determine if Chapter 11 is appropriate for your business and map out a strategy to successfully emerge from a bankruptcy reorganization as an ongoing venture. Schedule an appointment with us at your convenience to discuss your specific situation in detail during a free and confidential consultation.

We will match you with one of our knowledgeable debt relief attorneys who can explain how bankruptcy law fits your specific situation and be your guide throughout the process. Get in touch with us today to get started.

What is Chapter 11 Bankruptcy? 

Chapter 11 is a form of bankruptcy that involves the reorganization of a business’s affairs, debts, and assets in order to keep it operational. Companies usually file under Chapter 11 if they need time and court protection to restructure their debts. Filing for bankruptcy gives your business a fresh start. Your business will then deal with creditors through a payment plan approved by the United States Bankruptcy Court.

Does Filing for Chapter 11 Bankruptcy Make Sense for My Business?

In order to be successful under Chapter 11, your business must have sufficient revenue to continue its operations. If your business is not generating enough revenue to fund ongoing operations and some debt service, then a Chapter 11 bankruptcy is unsustainable. In this situation, we would recommend a liquidation under Chapter 7. Speak to a personal bankruptcy attorney for more detailed information.

The Bankruptcy Process for Small Businesses 

The Small Business Reorganization Act of 2019 created shorter deadlines, a streamlined process and statutory changes giving small business debtors greater flexibility in negotiating with creditors under the new Subchapter V of Chapter 11. This change allowed small businesses a feasible means to reorganize and retain the business without the rigorous requirements of a Chapter 11 case that usually made the relief unaffordable and unsustainable for a small entity.

In order to qualify to apply for bankruptcy protection under Subchapter V, you must be engaged in commercial or business activities (excluding real estate) and have specific types of debt of $2,556,050.00 or less.

Step 1: Get Prepared

The most important part of the case is usually having the information to properly prepare a case and a strategy that will provide a successful path through reorganization. The most common complication is the failure to maintain adequate business records and file tax returns. Prior to filing a case, your bankruptcy attorney must have accurate profit and loss statements, a business budget, a list of inventory, a list of outstanding accounts receivable, etc. Without this information, your attorney is without the basic building blocks for a proper foundation for the reorganization.

If you are contemplating a Chapter 11 reorganization, make sure that you get these books and records in order first so that an attorney can have a clear understanding of your current financial circumstances and prospects for recovery. File any outstanding tax returns with the IRS or SC Department of Revenue. Your bankruptcy attorney can help with tax liabilities, but only once the returns are filed with the appropriate agency. The most common obstacle to obtaining relief is the lack of business records.

Step 2: File for Bankruptcy

After you submit your financial documents to your attorney, we prepare the documents necessary to file for bankruptcy protection. We will meet with you to review these documents and make certain that our facts and overall strategy is sound. Only after we are confident that the business can successfully sustain its reorganized obligations will we file the case with the Bankruptcy Court.

Once the case is filed, you will have an initial interview with the U.S. Trustee’s Office, a Meeting of Creditors, and potentially other court hearings necessary to facilitate the execution of the case. A Chapter 11 Trustee will be appointed to act both as a gatekeeper and as a mediator with your creditors to seek a consensual plan.  You must pay the trustee for their services during the case.

Step 3: Submit a Reorganization Plan

Subchapter V requires that you must submit a plan of reorganization within 90 days of the filing date. If at all possible, the plan is prepared before the case is filed in order to have a comprehensive strategy in the case.

The plan must include terms of payment to each creditor and provide a clear statement of the financial circumstances of the business that led to the need for reorganization and the means to feasibly fund the plan moving forward. You will seek votes from creditors to approve the plan and the goal is to arrive at an agreed payment structure to allow for a quick confirmation of the plan.

Step 4: Confirmation and Discharge

A small business debtor can achieve confirmation of the plan of reorganization by agreement with the primary creditors in the case and receive a discharge upon that confirmation or the debtor can obtain confirmation without acceptance by creditors.

A plan confirmed without the agreement of your creditors must, among other things, be fair and equitable, address payment of secured claims, pay at least the liquidation value of the business assets to unsecured creditors, provide contribution of all disposable income over the next five years and the debtor must show the plan is financially feasible. A non-consensual plan is not discharged until all payments are made under the terms of the plan.

Get Started

If you want to learn more regarding Chapter 11 Small Business Reorganization in South Carolina, get in touch with us today.  The Meredith Law firm has three convenient locations in North Charleston, SC, Columbia, SC, and Myrtle Beach, SC.  Please remember that these explanations are very brief overviews and do not provide legal advice.  Meredith Law Firm, LLC is a debt relief agency.