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What is a small business bankruptcy?

Many small business owners in Vancouver understand how seeking protection from creditors in bankruptcy court can be beneficial, but many of these owners are deterred from filing a Chapter 11 bankruptcy petition by their fears about the cost of the process. Fortunately, the United States Bankruptcy Code contains several provisions aimed to assist these businesses by creating what is called the small business case in a Chapter 11 bankruptcy.

To take advantage of these provisions, the debtor must first show that it is a small business debtor engaged in commercial or business activities with total debt of less than $2,566,050. Secondly, the court cannot have appointed a trustee to oversee the case or has determined that the creditors' committee has been insufficiently active to provide oversight of the debtor.

Upon filing the petition, the debtor must provide its most recent balance sheet, statement of operations, cash-flow statement and tax returns. The business must continually update these filings to ensure their correctness. The debtor must also attend an initial interview with the U.S. trustee to determine the debtor's viability, assess the soundness of its business plan and receive an explanation of the debtor's obligations in a small business bankruptcy. Deadlines in a small business bankruptcy are different from a standard Chapter 11 proceeding and the process often moves more rapidly because extensions of these deadlines are difficult to obtain. Expediency is also encouraged by the requirement that only the debtor may file a plan of reorganization during the first 180 days after filing the petition. If the debtor provides a reasonable plan during this period, creditors are forbidden from filing their own plans.

Any business owner interested in pursuing a small business bankruptcy may wish to first consult an experienced bankruptcy attorney for advice on how the process works, how it is different from a standard bankruptcy and whether seeking status as a small business case would benefit the business.

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Beaty Hatch PC
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