Senate Considers Allowing Small Businesses to File Chapter 12

The Senate Judiciary Committee held a hearing entitled “Could Bankruptcy Reform Help Preserve Small Business Jobs” on March 17, 2010. The ideas presented at the hearing included a proposal to add a new category of entity that could file Chapter 12 (formerly reserved for family farmers and fisherman)–“small business enterprises.”

A small business enterprise would be defined as a small business with $10 million or less of debt where at least 50% of the debt had been incurred for business purposes.

This kind of proposal makes a great deal of sense for many reasons. First, it is rare indeed to find a Chapter 11 case that can be completed for less than $30,000 in attorney fees. A Chapter 12 case, on the other hand, might be able to be done for half of that on a fairly regular basis. Second, Chapter 13 would also be an inexpensive route, but the debt limits for Chapter 13 are so low that many small businesses do not qualify and Chapter 13 only applies to individuals, not LLC’s or corporations. Consequently, many small businesses that are incorporated (even those under the debt limits) do not qualify to file Chapter 13.

Opening up Chapter 12 like this makes a great deal of sense and the Senate should be encouraged to take up such a bill and to pass it.

Tagged on: Bankruptcy    Business Bankruptcy    Chapter 11    Chapter 12    Chapter 13