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What are the special categories under Chapter 11 bankruptcy?

On Behalf of | Sep 29, 2023 | BANKRUPTCY LAW - Business & Commercial Bankruptcy, BANKRUPTCY LAW - Chapter 11

Chapter 11, or reorganization bankruptcy, usually applies to businesses seeking to relieve debts but wishing to continue operations. This process involves preparing and implementing a reorganization plan approved by the court.

Under this bankruptcy type, the court allows some small businesses to file under special categories based on the circumstances, namely small business case and subchapter V. These classifications have unique eligibility criteria, making the court approach them differently than the usual Chapter 11 process. These qualifications may vary, depending on debt limits and types of the debtor when they file the case.

One category differs from the other according to the following features:

  • Small business case: This category requires the debtor to have a maximum of $3,024,725 in secured and unsecured debts, around 50% of what stems from their business activities. The debtor must meet this limit during the date of filing for bankruptcy. Additionally, this type allows the U.S. trustee to provide additional oversight to the debtor, putting them through interviews, evaluations and other requirements during the process.
  • Subchapter V: This category has a higher limit worth a maximum of $7,500,000 in secured and unsecured debts, which should be around 50% of the debt arising from their business activities. A case undergoing this process will have a trustee who administers the debtor’s estate and reorganizes it. The trustee is also responsible for investigating their financial details, including their assets, liabilities and relevant conduct or business operations.

Both special categories could have shifting deadlines, making their pace often faster than the usual Chapter 11 procedure. These options may also have variations with the appointment of a creditors’ committee and inclusions of the debtor’s duties.

Selecting an appropriate approach

Ideally, the typical Chapter 11 process can address the debtor’s needs. Still, these special categories exist to accommodate unique circumstances by reducing unnecessary costs and adjusting the process’ duration.