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Can a small business file for Chapter 11 bankruptcy?

Business owners in Florida with significant debt may want to learn more about filing for a Chapter 11 bankruptcy. Large corporations commonly choose Chapter 11 bankruptcy as an option for business reorganization, but this form of bankruptcy is also available for small businesses, which are those with fewer than 500 employees.

Chapter 11 bankruptcy is often a viable choice for those small business owners in Florida who want to continue operating their business with a plan that will return their business to profitability. Under the U.S. Bankruptcy Code, a business owner with debts of $2.19 million or less qualifies as a small business debtor. One significant advantage of a Chapter 11 filing is the additional planning time allowed for business debt negotiations. Business owners have 180 days to renegotiate terms with creditors, as opposed to only 15 days under a Chapter 7 filing.

To file for Chapter 11 bankruptcy protection as a small business debtor, a petitioner will need to supply the court with a cash-flow statement, a statement of operations, the most recent copy of the business's balance sheet, as well as a copy of the business's most recent federal income tax return. In evaluating a small business owner's Chapter 11 filing, a bankruptcy court will assess the business's report on its projected cash receipts and disbursements, as well as its profitability report. A business owner should expect considerable scrutiny of the business's operations from a bankruptcy court while the court assesses the bankruptcy filing.

It is a major decision for a small business owner to determine whether to pursue a Chapter 11 bankruptcy filing or a Chapter 7 filing. This is a decision that may best be made following guidance from a bankruptcy attorney who can offer counsel regarding the pros and cons of both options.

Source: FindLaw, "Chapter 11 Bankruptcy," accessed Nov. 27, 2015

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