In Chapter 11, a business may obtain exceptions from certain filings and procedures by being classified as a small business debtor. A debtor is a small business debtor when it passes a two-part test:
- Debtor must be engaged in commercial or business activities other than primarily owning or operating real property with total non-contingent liquidated secured and unsecured debts of $2,190,000 or less.
- Debtor’s case must be one in which the US trustee has not appointed a creditors’ committee, or the court has determined the creditors’ committee is insufficiently active and representative to provide oversight of the debtor.
In a small business case, when a trustee is not appointed, the debtor becomes a debtor-in-possession. The debtor attaches to the petition, the most recently prepared balance sheet, statement of operations, cash-flow statement and most recently filed tax return. The debtor makes continuous filings with the court to update on its profitability and projected cash receipts and disbursements. The debtor reports whether it has paid taxes and filed tax returns.
The small business debtor attends an initial interview with the US trustee. The US trustee, part of the Department Justice, monitors the progress of a Chapter 11 case. At the initial interview, the US trustee decides on the debtor’s viability and business plan. The US trustee monitors the activities of the debtor during the case to identify whether the debtor will be unable to confirm a reorganization plan. The reorganization plan discusses how the debtor will keep a business going and pay creditors over time.
When in debt, engage an experienced New York bankruptcy attorney for support in carrying out small business debtor responsibilities.