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Understanding Chapter 11 as a small business owner

Chapter 11 bankruptcy is often thought of as a filing that is meant only for corporations and big companies. However, Chapter 11 is also a possibility for smaller businesses, and indeed Chapter 11 filings are largely made up of smaller businesses. In this context, a small business is defined as having 500 employees or fewer. 

Even though a smaller business may file for Chapter 11, it is not guaranteed that their filing will remain a Chapter 11 filing. Usually a court will determine that the smaller business can't be come profitable, and as such, it will convert the filing into a Chapter 7 bankruptcy filing.

Depending on the specifics in your case, the process for your bankruptcy will obviously be very different than another case. Every bankruptcy is unique. But businesses will need to provide ample information to the court when they file for bankruptcy. The most recent balance sheet, a cash-flow statement, details on the operations of the company and the most recent federal tax return for the company will be required for the court to review.

As a small business, the court will likely oversee your case with greater enthusiasm than if they were dealing with a bigger company. A trustee will be appointed to your case, so be prepared to deal with that as well.

Chapter 11 doesn't have to be the end for your company. It can even be the chance for a new beginning. There are many options for businesses that enter Chapter 11.

Source: FindLaw, "Chapter 11 Bankruptcy," Accessed May 17, 2016

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