What is a Business for Purposes of Chapter 11?

Blog

Aug 11

Being engaged in commercial or business activity may include simply dealing with business debts.  So says a bankruptcy court in South Carolina.  This ruling could be particularly important for many of the businesses that are not open due to stay-at-home orders and the pandemic. 

In the South Carolina case an individual filed bankruptcy as a small business debtor under subchapter 5 of Chapter 11.  This new subchapter was created by the Small Business Reorganization Act (SBRA) and took effect in February of 2020. 

Under a SBRA Chapter 11 the debtor must not have more than $7.5 million in debt, and most of that debt must have arisen from commercial or business activities of the debtor.  The debtor must also be “engaged in commercial or business activity.”

The South Carolina debtor closed his business operations in 2018 and did not file the bankruptcy case until February 2020.  The court still found that he was engaged in commercial or business activity “by addressing residual business debt.”

The South Carolina decision is not binding on bankruptcy courts in Wisconsin but may be cited for its persuasive authority as we, here, try to help our closed businesses recover.

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