Attorney’s Guide to Preparing a Bankruptcy Filing: Which chapter to file, completing forms, and a comprehensive overview of exemptions, lien stripping, reaffirmations and more

William J. Amann | Amann Burnett PLLC

Joshua Burnett | Amann Burnett PLLC

Raymond H. Aver | Aver Law Firm

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The post Bill and Josh’s Excellent Adventure…….Comprehensive Bankruptcy Program, October 19th appeared first on Amann Burnett Law.

Amann Burnett, PLLC regularly represents creditors, debtors and interested parties in often complex bankruptcy and related litigation cases in Chapter 11.  Sub-V is a relatively new law with many facets.   Whether you are a creditor, debtor or interested party dealing with any bankruptcy issue, please consider contacting us.  We’ll update the progress of the case as appropriate.

Here is a basic overview of  the SBRA and Small Business Bankruptcy Under Subchapter V of Chapter 11, The Small Business Reorganization Act of 2019

Effective Date and Purpose

 Became effective on February 19, 2020

 Provides new tools for the Practitioner

 Tighter timelines

 Reduce cost to debtors

 Quicker return to creditors

 Assistance of a Subchapter V Trustee

 Intended to Promote Consensual Plans

 Greater Possibility of Confirmation of Non-Consensual Plans

 Benefits for Individual Small Business Debtor

Subchapter V is comprised of:

•  1181. Inapplicability of other sections
•  1182. Definitions
•  1183. Trustee
•  1184. Rights and powers of a debtor in possession
•  1185. Removal of debtor in possession
•  1186. Property of the estate
•  1187. Duties and reporting requirements of debtors
•  1188. Status conference
•  1189. Filing of the plan
•  1190. Contents of plan
•  1191. Confirmation of plan
•  1192. Discharge
•  1193. Modification of plan
•  1194. Payments
•  1195. Transactions with professionals

Who May Elect Subchapter V?

Must fit the “Small Business Debtor” definition of 11 U.S.C. § 101(51D):

 “Person engaged in commercial or business activities.”

 Total noncontingent liquidated debt less than $2,725,625.  Revised up to $7,500,000, see 11 USC § 1182 above.

 At least 50% of the debt must have arisen “from the commercial or business activities of the debtor.”

 May be an affiliate of a small business debtor so long as aggregated debt remains below $2.7M.

Not a single asset real estate debtor.

How to Elect Subchapter V?

 Debtors that fit within the “small business debtor” definition of §101(51D), must affirmatively elect Subchapter V treatment within 14 days or their case will proceed under the general small business provisions of Chapter 11.

 Official Form 101, Voluntary Petition for Individuals, contains a new checkbox under Part 3, Question 13 to indicate if debtor is a small business and whether proceeding under Subchapter V or not.

 Official Form 201, Voluntary Petition for Nonindividuals, contains a new checkbox under Question 8 for a small business debtor to indicate whether proceeding under Subchapter V or not.

 Debtor remains in possession and operates the business.

 A Subchapter V Trustee is appointed with specific responsibilities.

 Provisions regarding use of cash collateral and sale of assets apply.

 No creditor committee unless the court orders otherwise for cause.

 No disclosure statement required but the plan must include:

A brief history of the business operations of the debtor;

A liquidation analysis; and

 Projections with respect to the ability of the debtor to make payments

under the proposed plan of reorganization.

 Only the Debtor may file and modify a Subchapter V plan.

 Postpetition earnings and acquired property is property of the estate if a non-consensual plan is confirmed. §1186(a) See also §1115 for individual debtors.

 Acceptance of one accepting impaired class is not required to confirm a nonconsensual plan. The absolute priority rule does not apply.

 Individual debtors may cramdown a mortgage on their principal residence if the loan proceeds were used “primarily in connection with the small business of the debtor” and not to purchase the residence.

 Debtors do not pay quarterly fees to the UST.

 The debtor may hire a professional even if that professional is a creditor.

Professional is “not disqualified for employment . . . solely because [the professional] holds a [prepetition] claim of less than $10,000 . . ..”

 Administrative expenses (including trustee fees) may be paid over time through the plan.

Timing of Discharge

 Debtors who confirm consensual plans effectuate a discharge upon substantial consummation of the plan, unless the plan or order provides otherwise. See §1141(d)

 Debtors who confirm cramdown plans receive a discharge after 3 to 5 years of payments.

 These streamlined procedures are balanced by tighter deadlines, involvement by a trustee, and information requirements.

Filing a skeletal petition:  Not a Good Idea.  Need–Most recent Balance Sheet, Stmt. of Operations, Cash Flow Stmt., and Fed. Income Tax Return must be filed with Petition or not later than 7 days, or a  statement that those have not been prepared. § 1116(1);

Schedules to be filed within 14 days of Petition, which may not be extended to more than 30 days “absent extraordinary and compelling circumstances”.

 UST appoints subchapter V trustee and sets 341 meeting within 24 to 48 hours

of filing.

 341 meeting held as close as possible to 21 days after filing, depending on the location of the meeting.

The court is required to hold a status conference not later than 60 days after the case is filed “to further the expeditious and economical resolution of a case under this subchapter.” §1188.

Report on plan efforts due 14 days prior (Valuation/Best Interest Analysis).  The court may extend the 60-day period only “if the need for an extension is attributable to circumstances for which the debtor should not justly be held accountable.”

308 Small Business reporting remains applicable.

Subchapter V trustee is appointed at the beginning of the case.

 Primary pre-confirmation task is to “facilitate the development of a consensual

plan of reorganization.”

Services generally terminate upon substantial consummation of a consensual plan.

Trustee remains in place to distribute plan payments if a cramdown plan is confirmed.

 DIP may be removed for cause.

 If DIP is removed, the trustee will operate the business.

SBRA allows for either standing or case-by-case trustees.

 Both standing and case-by-case trustees have the same duties.

 Standing and case-by-case trustees are compensated under different statutes.

 Initially, the UST will appoint case-by-case trustees to administer cases rather than standing trustees.

Subchapter V case-by-case trustees will be paid under 11 U.S.C. §330.

 Unlike compensation for chapter 7 trustees, Subchapter V case-by-case trustees’  compensation is not based on disbursements.

 SBRA conforming amendments specifically make section §326(a) inapplicable to

subchapter V cases, which precludes determining compensation based on

disbursements.

 Instead, case-by-case trustees must apply for fees and expenses under section 330

and establish that fees are reasonable (likely based on time spent and a reasonable

hourly rate) and expenses are actual and necessary.

In general, the Subchapter V trustee will evaluate the viability of the business

and prospects for reorganization.

 Upon appointment under §1183(b)(1), the trustee shall perform the duties specified in §704(a)(2), (5)-(7), and (9):

 Be accountable for all property received;

 Examine proofs of claim and object as needed; oppose the debtor’s discharge, if

advisable;

 Furnish information concerning the estate requested by a party in interest, unless

the court orders otherwise;

 Make a final report; and

 File an account of the administration of the estate with the court and the UST.

The trustee will take part in the status conference and other hearings scheduled

by the court.

 The UST generally will preside at the creditors’ meeting, but the trustee will be

expected to attend and participate.

 The trustee is charged with facilitating the development of a consensual plan of

reorganization and ensuring that the debtor commences making timely payments

under any confirmed plan.

 If there is a claim for a domestic support obligation with respect to the debtor,

the trustee must furnish the required notices.

For cause, and upon request of a party in interest, the court may require the

trustee to also perform the duties specified in section 1106(a)(3), (4), and (7):

 Investigate the conduct and financial condition of debtor, and any other matter

relevant to the case;

 File a report of any investigation conducted; and,

 After confirmation, file any such reports that are necessary or as the court orders.

If the court orders pursuant to §1185 that the debtor shall no longer be a debtor in possession, the Subchapter V trustee shall operate the debtor’s business.

 Section 1183(b)(5) requires the trustee to:

 File any required schedules and statements;

 File periodic operating reports;

 Serve as the administrator of any employee benefit plan;

Make reasonable efforts to transfer patients from a closing health care

business to a new provider offering similar services; and;

 For any year in which a tax return has not been filed, furnish such

information as may be required by the applicable governmental entity.

The subchapter V trustee might (or might not) handle funds and make

distributions.

 Section 1194 permits, but does not require, a debtor to make adequate protection

payments through the subchapter V trustee, with the permission of the bankruptcy

court.

 If the subchapter V trustee holds funds pre-confirmation, then upon confirmation,

• 1194 directs that the trustee either distribute those funds in accordance with a

confirmed plan or return those funds to the debtor after deducting any:

(1) unpaid administrative expenses,

(2) adequate protection payments due to a secured lender, and

(3) fees owing to the trustee.

If a consensual plan is confirmed, the trustee’s services will terminate upon substantial consummation of the plan. §1183(c)(1)

If a cramdown plan is confirmed, the trustee shall make payments to creditors under the plan, except as otherwise provided in the plan or confirmation order. § 1194(b).

The post Amann Burnett, PLLC represents Arete Rehabilitation, Inc. in a Chapter 11, Sub-Chapter V Bankruptcy Case in New Hampshire appeared first on Amann Burnett Law.