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Do you qualify as a small business debtor?

For those Salem companies that are looking to bankruptcy as their chance to discharge their debts and start again under a new corporate structure, then the challenge of dealing with creditors’ committees  and other parties lies ahead as they work their way through a traditional Chapter 11 bankruptcy. Yet what if you run a small business that doesn’t have a large amount of debt? While the amount you owe may be a struggle for you to come up with, it may not represent a sufficient enough amount to warrant forming a committee of creditors. In this case, you may be able to be treated as a “small business debtor.”

The United States Courts website lists the requirements to qualify as a small business debtor to be as follows:

  •          You must currently be engaged in business or commercial activity.
  •          You cannot have secured or unsecured debts in excess of $2.49 million.
  •          You cannot have had a creditors’ committee already appointed by the U.S. Trustee assigned to your case.

Given the absence of a creditors’ committee to represent the groups of people to whom you still owe, you are required to work more closely with your U.S. Trustee in this scenario. As a small business debtor, you are also required to assume more of the responsibility in the reporting of the reformulation of your business to the court, including information regarding your new business plan and your current tax status.

What is the advantage of qualifying as small business debtor? Because fewer parties are involved, fewer procedural steps are required. While this typically makes the court less inclined to offer extensions on your case, it also allows you to get through your proceedings much faster than you would with a traditional Chapter 11 bankruptcy. 

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