Small Business Law

There are many legal pitfalls throughout the life cycle of a small business. You need sound legal advice during these periods. As your attorney, I focus on your needs while keeping your goals and expectations in mind.

Defending Your Rights In and Out of Court

Call Moretsky Law for a Free and Confidential Consultation

slider_06

Business Debt Solutions

Helping businesses restructure and eliminate debt.

slider_04

Tax Controversy and Litigation

Assisting Taxpayers with IRS issues in all 50 states

slider_05

Estate Planning

What is Estate Planning? And Why Do I Need It?

header_004

Personal Bankruptcy

Get a Fresh Start and Achieve Debt Relief Today

header_003

Bankruptcy Attorney

Call 215-344-8343 for debt relief with Moretsky Law.

header_001

Chapter 11 for a Small Business

August 11, 2014

Alex Moretsky

November 7, 2014

When is it appropriate for a small business to file for Chapter 11 Bankruptcy protection in Pennsylvania? Although Chapter 11 is normally associated with large corporations it is available to small businesses.
A small business is defined as a company having under 500 employees, although 96% of such businesses employ 50 or less. These small companies make up the majority of Chapter 11 filings. Small businesses, as defined by the American Bankruptcy Institute, are determined by:

  1. Whether they are closely held
  2. Whether it is owner operated
  3. The liabilities are backed by personal guarantees
  4. Have a lack of ability to afford professional fees
  5. Have less than $10 million in debt and $5 million in annual revenue

Chapter 11 is the only bankruptcy option for a small business that is looking to restructure and continue operating. Under Chapter 11 the debtor can restructure finances through a plan of reorganization that is approved by the bankruptcy court which will help to balance expenses and income, regain profitability and continue operating. The business can also sell off its assets, eliminate unprofitable contracts and leases, and pay off claims for less than the full amount owed. But a lot of small businesses in Philadelphia and Montgomery County shy away from Chapter 11 because it can be expensive, time consuming and complex. There are, however, some special provisions for small businesses that fast track and reduce legal costs.

  1. No Creditors Committee. Usually appointed to represent the interests of creditors, they can retain lawyers at debtor’s expense.
  2. Larger Exclusivity Period to Propose Plan. In some cases, creditors file competing Chapter 11 plans of reorganization. Those plans typically provide for the liquidation or takeover of the debtor’s assets and business.  The debtor usually has the exclusive right for 120 days after it files bankruptcy to propose a Chapter 11 plan.  In small business cases, the exclusivity period is extended to 180 days.  The longer exclusivity period reduces the risk to the debtor of having to litigate competing plans and potentially losing its business.
  3. No Disclosure Statement. Similar to a stock offering prospectus, disclosure statements are extensive and expensive, but can be waved for small businesses in Chapter 11.