The Ten Duties of a Debtor in a Kentucky SBRA Chapter 11 case

Chapter 11 – Business Bankruptcy

Kentucky SBRA Chapter 11 Bankruptcy Case

We filed a Kentucky SBRA Chapter 11 Bankruptcy case in Louisville hours after the act went into effect. Under the SBRA filing is supposed to be simple. It is more simple that a normal Chapter 11 but it moves very quickly.  At the end of this post is the standard request for documentation; you get at the start of the case.  SBRA cases have a monthly operating report just like you file in any other Chapter 11. Here is the form for the monthly operating report.  The SBRA was supposed to streamline the filing of Chapter 11 but to someone who does not understand how complicated a Chapter 11 case is, it may seem overwhelming.  The judge’s approval of a Chapter 11 plan seems based on whether or not the business has a positive cash flow to repay creditors.  This requires a budget for the decision as to whether the  Chapter 11 business bankruptcy  can be profitable or not through reorganization.  A Chapter 11 requires the business to be able to afford the bankruptcy on top of it’s operating budget.  Yes you can reorganize but can the corporation or individual afford it, run a day to day business and make a profit.

The Duty to Cooperate in a Kentucky SBRA Chapter 11 case

There is both a panel trustee and the US Trustee who have duties to supervise the case. The Debtor in an SBRA Small Business Reorganization has specific duties under 11 U.S.C. § 521(a)(3). There has always been a duty to co-operate with the Trustee and this is nothing new to bankruptcy.  The Debtor chooses to be in or not in Chapter 13. If you ask for the benefits of bankruptcy you have to co-operate.

The Duty to Comply with four main Deadlines of an SBRA Chapter 11 case

The Deadlines includes and initial interview and a status conference within 60 days after filing 11 USC 1188(a)(3). Fourteen days before the status conference, the debtor must report the efforts a debtor has taken to attain a consensual plan of reorganization 11 USC 1188(c). Ninety days after filing the debtor must file a plan 11 USC 1189(b). These are the primary important deadlines pre-confirmation of the plan but there are other deadlines including the monthly reports.  To see a more complete list check out our Kentucky SBRA checklist.

The Duty to file a Small Business Budget which can and will be approved

The Income, the Debtor, earns after the commencement of the case is property of the bankruptcy estate which is controlled by the Trustee and the Debtor in possession 11 USC 1115 (a) (2). To operate the business, the Debtor must file a motion with proper notice and a hearing before paying wages and expenses 11 USC 363(b)(1). If a property is used without authorization, the case may be converted, dismissed or a trustee may be appointed to manage your property directly by the US Trustee.

The Duty to file SBRA Periodic Controlling Interest Reports.

There is also a duty to provide periodic operating reports on the value, operations, and profitability of the business or entity when you have over 20% ownership interest in a business. Periodic reporting is required under Fed R Bankr. P. 2015.3 and the reporting is on Form 426. The report is due seven days before the first date set for the meeting of creditors and semiannually thereafter.

The Duty to file SBRA Monthly and Quarterly reports.

Each month the Debtor must file a monthly operating report and no later than 20 days after the month being reported on. This is reported on form 425C along with any supporting documentation and exhibits. Post confirmation reports are not required though for an SBRA due to Bankruptcy Rule 2015(a)(5)

The Duty to attend an SBRA Initial Debtor Interview IDI within ten days of filing the petition.

In every SBRA case the US Trustee will schedule an IDI with the attorney and the Debtor. It is normally held at the place of business but it can be held at the US Trustees office at the US Trustees discretion. At the IDI the Debtor must have provided requested documentation at least 2 days before the IDI Interview in pdf format. See the letter requiring documentation for this meeting at the bottom of this post for a very small company.

The Duty to provide proof of insurance at least 7 days prior to the IDI Initial Interview.

The Debtor is required to provide proof of insurance no later than 3 days after the case is filed with a loss payable to “[Debtor], debtor in possession” with the United States Trustee listed as a party to be notified of any change, cancellation or expiration of each policy. The Debtor in Possession must maintain insurance for all the tangible assets and have workers compensation and a general liability insurance policy. If normally use in the industry product liability or professional liability insurance must also be maintained.

The Duty to file and pay Taxes under SBRA Chapter 11.

The Debtor has to file and pay taxes on time. Not filing and not paying taxes on time is a basis for the case being dismissed and the gross income is the income of the estate. 26 USC 1398 e this may create tax problems and a debtor should get advice from a tax professional.

The Duty to close old bank accounts and open new bank accounts at an authorized bank.

The District keeps a list of authorized banks. The new Bank Account cards must indicate the Debtor is a “Chapter 11 Debtor in Possession”. All the checks for the company must note the Debtor is a “Debtor in Possession” and contain the case number on the face of the check. The Debtor in Possession is responsible for ensuring all monies of the estate are reasonably and adequately protected. 11 U.S.C. § 345.

The Duty to keep and maintain books and records.

The company is required to close its books and records upon the date of filing and to start new books and records. The Debtor has to account for pre and post-petition accounts receivables and payable in all reporting.

A checklist of the required initial documentation for a Kentucky SBRA Chapter 11 Bankruptcy case.

The United States Trustee has administrative oversight duties in chapter 11 bankruptcy cases pursuant to Title 11 U.S.C. §586.

I have attached pertinent documents and instructions which should assist you and your client in meeting the fast timelines under subchapter V including:

(1) Operating Guidelines which explain some of the basic obligations of a Debtor in Possession (“DIP”) in a chapter 11 case.
(2) a Small Business part Monthly Operating Report (“MOR”) that must be filed with the court each month while the case is open, including an income and expese spreadsheet;
(3) a current List of Authorized Depositories for post-petition banking. Please review these documents with your client to ensure prompt completion and compliance.

Since your client has elected to file under the provisions of subchapter V, time is of the essence in ALL matters and the subchapter V Trustee will be involved at all stages of this case. Upon receipt of this e-mail please immediately or as soon as possible take the following actions:

1. Acknowledge receipt of this e-mail,

2. Call me as soon as possible to discuss the case and schedule the Initial Debtor Interview (“IDI”) which must be held within 10 days of the filing of the petition.

3. Review the attached documents with your client,

4. Provide immediately, via e-mail, the following documents:
a. Bank account statements for the 12 months prior to bankruptcy filing;
b. A voided check from each Debtor in Possession checking account with “Debtor in Possession” and the case number on the check heading (temporary checks not acceptable);
c. Three (3) most recently filed federal income tax returns with all attachments;
d. Declaration page(s) from each insurance policy maintained by the debtor with the U.S. Trustee added as a certificate holder;
e. Most recent monthly Profit and Loss Statement (i) prepared by the Debtor, and (ii) externally prepared;
f. Most recent Balance Sheet (i) prepared by the Debtor, and (ii) externally prepared;
g. Cash disbursement ledgers (in .xls or .txt format) for the 12 months prior to bankruptcy filing; and
h. Minutes of any board of directors meetings held in the 12 months prior to bankruptcy filing.

The documents produced should be organized and labeled to correspond to the categories in this request. The IDI will normally held at the Debtor’s principal place of business prior to the §341 meeting of creditors. However, the IDI may be conducted by telephone, or at our office, depending on the nature of the case, and at our discretion.

Thank you in advance for your attention to this matter. I look forward to working with you on this case.

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