Business Bankruptcy

Washington Debt Law has experience in representing both debtors and creditors in Chapter 11 Bankruptcy proceedings.  Whether you need to file a petition, have representation in a creditor’s committee, or litigate via adversary proceedings, we can help.

Business Bankruptcy Services

We represent small to mid size businesses in bankruptcy matters.  We also represent creditors who are owed money by businesses or individuals going through bankruptcy proceedings.  Services include petition preparation for businesses, representation of creditors inside of a business bankruptcy, as well as a full suite of litigation and adversarial options.

Our Approach

While we are bankruptcy attorneys, we believe that bankruptcy is often over prescribed or used prematurely.  We first look to non-bankruptcy legal options, such as settlement, litigation, workouts, and out of the box approaches, to determine whether a non-bankruptcy, bankruptcy, or hybrid approach would be best.  To determine this, we focus on the numbers not only of your business, but you personally, and whether or not a creditor could go after your personal assets or other business assets.  In most cases a hybrid approach of using litigation and strategic settlement while your business begins to wind down is most successful with a well timed bankruptcy to wrap up the remaining issues is best to protect both you and your business.

Considerations for Personal Liability Prior to Filing

One of the reasons to file a business bankruptcy is to avoid personal liability upon your business debts.  There are some business structures and circumstances that may require a personal bankruptcy in addition to or in lieu of a business bankruptcy.

Chapter 7 Liquidation vs. Chapter 11 Reorganization

Chapter 7 – Chapter 7 is a bankruptcy option for debtors that do not have the means to restructure their obligations and continue in business. In Chapter 7, a trustee is appointed, available assets are sold, and creditors are paid to the extent funds are available. Partnerships, limited liability companies, and corporations are all eligible to file bankruptcy under Chapter 7. Depending on their income, individuals who own and operate small businesses as sole proprietorships also may file bankruptcy under Chapter 7.

Chapter 11 – Chapter 11 is the only bankruptcy option for a small business seeking to restructure and continue in operation if it is owned by a partnership, limited liability company, or corporation. Chapter 11 is also the only bankruptcy option for individual business debtors who want to reorganize but owe too much money to meet Chapter 13’s eligibility requirements.


Small Business Chapter 11

Under Chapter 11, a debtor can restructure its finances through a plan of reorganization approved by the bankruptcy court. By reducing obligations and modifying payment terms, a Chapter 11 plan can help a debtor balance its income and expenses, regain profitability, and continue in operation. Under Chapter 11, a debtor also can sell some or all of its assets so it can downsize its business if necessary or pay down claims that it owes.

For the most part, businesses and major corporations have to follow the same rules and meet the same requirements to reorganize under Chapter 11. There are, however, some special provisions for business debtors that can help them fast track through the Chapter 11 process and reduce legal and other restructuring expenses.

Under the Bankruptcy Code, a Chapter 11 proceeding filed by a “small business debtor” is considered to be a “small business case.” A “small business debtor” is a person or entity who: (1) is engaged in business or other commercial activities (other than primarily owning or operating real property); and (2) owes no more than $2,566,050 in total claims (excluding obligations owed to insiders such as family members of the business owners).

Special procedures for small business Chapter 11 cases:

No Creditors’ Committee. In a small business case, the bankruptcy court can order that no creditors’ committee be appointed, which can significantly reduce the cost of Chapter 11 reorganization.

Additional Filing and Reporting Duties; Oversight by Chapter 11 Trustee. Small businesses are subject to some reporting and filing requirements that are not imposed on other larger Chapter 11 debtors. A small business debtor, for example, must attach its most recently prepared balance sheet, statement of operations, cash flow statement, and federal tax return to its bankruptcy petition when it files for Chapter 11 relief.

Plan Deadline. In small business cases, the debtor has 300 days to propose a Chapter 11 plan. The court can extend the 300-day deadline if the debtor proves that it will be able to obtain approval of a plan within a reasonable period of time.

Longer Exclusive Period to Propose Plan. In small business cases, the exclusivity period is extended to 180 days, rather than the 120 days for larger businesses. The longer exclusivity period reduces the risk to the debtor of having to litigate competing plans and potentially losing its business.

No Disclosure Statement. Ordinarily in Chapter 11, the debtor must prepare a disclosure statement, submit it to the bankruptcy court for its approval, and circulate copies to creditors and other parties in interest. In small business cases, however, the bankruptcy court can waive the disclosure statement requirement, which can significantly expedite the reorganization process and reduce legal and other costs.