How to File Bankruptcy Fast: 5 Rules for an Emergency Petition

Many business owners today are financially imperiled. Lenders are calling in notes and levying bank accounts; landlords are giving tenants the boot; suppliers are cutting off materials. If creditors threaten to seize your assets, you can file a bare-bones bankruptcy petition to get immediate bankruptcy protection. Once the court receives your petition, you can fill in the remaining schedules and forms later. This protection, the automatic stay, applies to most types of creditor collection actions: lawsuits, foreclosure actions, repossessions and the enforcement of judgments and liens. Although many of the threats you face may be stopped by filing your petition and obtaining the stay, not all of them will be.

The emergency petition has five rules to make it work.

First, you can represent yourself (called filing “pro se”) in court if you are a natural person. But corporations and partnerships must have a lawyer. If you are a business owner, and you find out the bank is going to levy your receivables account tonight, the first call is to a bankruptcy lawyer.

Small Businesses and Subchapter V Cases

Second, a Subchapter V business must have debts of $3,424,000 or less, and at least 50% of your debt must be related to your business. Small businesses and Subchapter V cases move quickly and have tight deadlines. If you, with the advice of counsel, choose a small business or Subchapter V bankruptcy, you go on a special track. The rules are tighter, and there are extra duties for the debtor. In a Subchapter V case, a trustee is appointed to oversee the plan. There is no committee of creditors in a Subchapter V case unless one is appointed for cause shown. Only the debtor can file a plan.

Third, even with a bare-bones petition, at the very least you need to include all your creditors’ names and addresses. To file a Chapter 11, you must attach to your petition a list of your 20 largest unsecured creditors, who are not insiders. Small businesses must attach a balance sheet, a statement of operations, a cash-flow statement and a tax return (or a sworn statement that these do not exist). The bankruptcy court where you should file is in the district where the business has its principal place of business. The filing fees for a voluntary Chapter 11 bankruptcy are $1,738 and are paid at the time you file the petition.

Statutory Time Frames

Fourth, you must file your schedules and statements of financial affairs within 14 days after your petition is filed. In bankruptcy, there is a packet of forms to be filled out (which are often called “schedules” or “listings”), often as long as a Russian novel, and a Statement of Financial Affairs. The forms ask questions like:

• What are the business’s assets and liabilities?
• What is its current income and expenses?
• What contracts and unexpired leases exist?

The statutory time frames (deadlines) are important to you because failing to complete your disclosures can lead to dismissal of your case. The court will not give you much extra time in a small business case.

The U.S. trustee steps in quickly. You have to open new bank accounts. You must make monthly income and expense reports and pay all current payroll withholding taxes. In a small business case, there is an initial debtor interview.

If you’re filing personally, and on a non-emergency basis, you must complete a credit counseling session within 180 days before filing. In an emergency, when you cannot do your credit counseling within seven days of your request, your case can still be filed on an emergency basis, with the credit counseling completed within 30 days after filing.

The Automatic Stay

Fifth, the stay gives you a breathing spell to negotiate some new deals with your creditors. In Chapter 11, if your business is still open, in most cases you will stay in possession and you will run the business (called debtor in possession). Most of the day-to-day operating expenses continue to be paid in the ordinary course. Some creditor actions are excepted from the stay by law. Secured creditors are able to ask the court to lift the stay if the collateral isn’t needed for an effective reorganization and if there’s no equity in the property.

If you, as an owner, have a pending personal bankruptcy case, the automatic stay only lasts 30 days if you’ve had a prior bankruptcy case that was dismissed within the past year. You can still get the stay extended by showing good faith. But, if two or more of your cases were dismissed in the past year, no stay goes into effect.

Once you file your bankruptcy, until the court enters a cash collateral order, you cannot spend any funds the bank has a lien on. Keep the cash separate until you get its consent or a court order, and be able to show that you have accounted for it.