Chapter 11: Reorganization for Small Business

A lot of attention has been paid to big companies like Sports Authority filing for Chapter 11 bankruptcy, and the chain was back in the Wall Street Journal as vendors who sold to Sports Authority on consignment sought the return of their goods after Sports Authority filed for bankruptcy. The total goods came to about $85 million worth of products, and the settlement allows the items to remain on the shelves with vendors allocated 60 percent of the sales. Vendors had threatened previously to seize the remaining goods. With bankruptcies like Sports Authority and RadioShack, it would be easy to believe that Chapter 11 bankruptcy is only for large businesses. However, Chapter 11 can do a lot for small businesses as well.

Any business can file for Chapter 11 bankruptcy, it doesn’t matter if it’s a sole proprietorship, partnership, Limited Liability Corporation or Partnership, S Corporation, or C Corporation. Once you file for Chapter 11 bankruptcy, you and your partners (if any), become what is called debtor in possession and continue to operate your business, much as if you were the trustees of a business entering Chapter 13 bankruptcy. It is your obligation to operate the business in a manner that is aboveboard, documented in detail with regards to financial activities, and in the best interests of your creditors.

However, don’t think that you are free and clear of any involvement with the US Trustee. Attorneys and analysts for the U.S. Trustee will be monitoring the conduct of the debtor-in-possession and the operation of the business. They will scrutinize documents, reports, and financial records as well as conducting meetings with your creditors. You will also be paying the trustee a quarterly fee until the case is ended one way or another. Should you be found to be out of compliance, or even worse acting in a manner which the trustee deems to be fraudulent, the trustee can petition the court to have the case converted to another type of bankruptcy or to have it dismissed. Small businesses get additional oversight because they generally lack the resources of larger corporations to comply fully with the trustee. This is not just an officer of the court, but part of the Department of Justice, and an office to take very seriously.

As you can see, Chapter 11 does not leave you free and clear to do whatever it is that you want. If anything it is one of the most stringent types of bankruptcy that can be filed. Filing for bankruptcy is never an easy decision, but the longer you put it off the worse it can get. You wouldn’t think twice about seeing a doctor for a broken arm, and the consequences of ignoring and continuing to try to work with that break could make the damage even worse. Call us at Van Horn Law group, and let us make an appointment for a free consultation and start working on a realistic reorganization plan. You don’t have to be Sports Authority for your business to be important to us. Let’s get to work on that reorganization.