Many of the business owners we talk to at Delancey Street have already started looking for a bankruptcy lawyer. If bankruptcy is truly on the table, a business in serious debt needs a skilled business bankruptcy lawyer. The U.S. bankruptcy process can be complicated and time-consuming. But not every lawyer is suited for every case. Business bankruptcy lawyers have specialties and experience that are different from those of a consumer bankruptcy lawyer.
Chapter 11
The first difference is the chapter of the bankruptcy code. Chapter 13 is only available to individuals and sole owners, so corporations, partnerships and LLCs can only file under Chapter 11. Chapter 11 allows for flexibility of the business’ ongoing operations. The business may continue to operate while working on a restructuring plan. That is why, if you run one of those entities, you want a lawyer who is familiar with Chapter 11.
The second difference is how hard the work is. Chapter 11 is the most difficult type of bankruptcy, and a lawyer needs to have the proper background to handle it. Since it is complicated, business bankruptcy lawyers need legal experience and a sharp mind. They need to pay attention to the tiniest details to protect the business and make sure the owner has the best chance of success. It is true that chapter 11 is a more complex and risky bankruptcy than the other ones.
The third difference is cost. Chapter 11 is typically the most expensive type of bankruptcy, and costs can vary depending on the complexity of the case. Once upon a time, many small businesses thought Chapter 11 was too pricey, because it gives creditors more say, and that increases the cost of lawyers. For most business owners, cost matters, and it is worth asking about fees before you sign anything.
A Commercial Bankruptcy Attorney
The fourth difference is that a commercial bankruptcy attorney is trying to keep a business alive. In most Chapter 11 cases the owner stays in control as the debtor-in-possession. But the business owner must keep the business going. Once the company files bankruptcy, it has four months, the so-called “exclusivity period,” to devise a reorganization plan, and the judge can stretch that deadline if there’s a good reason. Once it’s all approved, the company must stick to the terms of the plan and pay every promised amount on time. Frequently, the plan means making the business smaller. If the court determines that the company has been mismanaged through fraud, dishonesty or gross incompetence, it can name a trustee to run the company’s business during the bankruptcy instead of the owner. Chapter 11 requires a business attorney who is familiar with the process and who can put the pieces together quickly and confidently. A consumer bankruptcy attorney does not need to keep a business alive.
The fifth difference is that a commercial bankruptcy attorney should know the options written for smaller companies. There are two alternative paths for small businesses using Chapter 11: the small business case, established by Congress in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act; and subchapter V, established by the Small Business Reorganization Act in 2019 which went into effect on February 19, 2020. Both small business and subchapter V cases deviate from the standard Chapter 11 process, usually involving shorter deadlines and the quicker confirmation of the plan. They are both designed to streamline and reduce the expense of the bankruptcy process. To qualify for a small business case, the company must be engaged in business rather than mainly owning or operating a single piece of real property. The debt must be $2,725,625 or less (that’s in noncontingent liquidated secured and unsecured debt), and at least half of that has to be business debt. A consumer bankruptcy lawyer doesn’t have to worry about these. The commercial bankruptcy lawyer must be aware of and work with the special small business chapters.
The sixth difference is how wide the menu of options is. A sole proprietor will often be better off in Chapter 13, which is less complicated, less risky and usually more affordable than Chapter 11. The menu of options is broader and more complicated for a business owner. A company should enter a Chapter 11 case only after carefully exploring every other realistic option. Subchapter V streamlines Chapter 11 procedures so that small business owners can restructure their debts with a case more like Chapter 13. The more knowledge and options, the better. A commercial bankruptcy attorney can tell you whether subchapter V is the right fit for your company.
As for Delancey Street
As for Delancey Street: We are not a law firm. We’re a business debt settlement firm: we negotiate for less than what you owe with your lenders and funders, and if you need bankruptcy we’ll make sure you’re connected to a quality independent lawyer. We will not promise you a magic solution or jump to conclusions. We will be honest with you about whether a business bankruptcy lawyer can help and what your options might be. If you decide that it is time to speak with a business bankruptcy attorney, try asking the lawyer if he or she has handled cases under subchapter V.
