Chapter 11 Bankruptcy in Kansas City

Chapter 11 is the reorganization chapter of the Bankruptcy Code. Unlike Chapter 7, which liquidates a business and distributes assets to creditors, Chapter 11 allows the business to continue operating while it develops a plan to restructure its debts under court protection.

The business owner typically remains in control as a "debtor in possession" -- running day-to-day operations, maintaining employees, and serving customers. The court provides breathing room through the automatic stay, which stops creditor lawsuits, foreclosures, and collection actions while the reorganization plan is developed.

Chapter 11 is available to individuals, sole proprietors, partnerships, LLCs, and corporations. It has no debt limit, making it the primary option for businesses too large for Chapter 13. However, the traditional Chapter 11 process was historically slow and expensive -- which is why Congress created Subchapter V in 2019.

The Small Business Reorganization Act of 2019 (SBRA) added Subchapter V to Chapter 11, creating a streamlined path specifically for small businesses. It took effect in February 2020 and has since become the most common form of Chapter 11 filing nationwide.

Subchapter V eliminates many of the procedural hurdles that made traditional Chapter 11 prohibitively expensive for small businesses:

• No creditors' committee. Traditional Chapter 11 cases often involve an official committee of unsecured creditors (with its own attorneys, paid by the debtor's estate). Subchapter V eliminates this requirement, saving tens of thousands of dollars.
• No disclosure statement. Traditional Chapter 11 requires a detailed disclosure statement that must be approved by the court before creditors can vote on the plan. Subchapter V skips this step entirely.
• Debtor retains equity. Under Subchapter V, the debtor can keep the business even if not all creditors agree to the plan. In traditional Chapter 11, the "absolute priority rule" could force the debtor to give up ownership.
• Faster timeline. The debtor must file a plan within 90 days (extensions are common but the pace is far faster than traditional Chapter 11).
• Subchapter V trustee. A standing trustee is appointed to facilitate plan negotiations, but the trustee does not take control of the business.

Who Qualifies for Subchapter V?

To elect Subchapter V, a debtor must meet all of the following requirements:

1. Engaged in commercial or business activities. The debtor must be a person or entity engaged in business (this includes sole proprietors, LLCs, corporations, and partnerships).
2. Aggregate debts of no more than $7.5 million. This limit, originally $2,725,625, was raised by the CARES Act and subsequently extended by Congress. Both secured and unsecured debts count toward the cap.
3. At least 50% of debts from business activities. This requirement applies only to individuals and ensures that Subchapter V is used for genuinely business-related reorganizations rather than as an alternative to Chapter 13 for consumer debts.
4. Not a single-asset real estate debtor. Entities whose primary business is owning a single property (such as a rental building) do not qualify.

A small business in Kansas City that meets these requirements can elect Subchapter V by checking a box on the petition. The election must be made at the time of filing.

In Chapter 11, the business owner continues to operate the business as a "debtor in possession" (DIP) under 11 U.S.C. section 1107. This means:

• You maintain day-to-day control of business operations
• You continue to manage employees, serve customers, and collect receivables
• You can use cash and other property of the estate in the ordinary course of business
• You have the duties of a trustee, including maintaining accurate financial records and filing regular reports (Monthly Operating Reports, or MORs) with the court and the U.S. Trustee

Certain actions require advance court approval, including selling assets outside the ordinary course of business, taking on new financing (DIP financing), and entering into or terminating significant contracts or leases.

The plan is the core of a Chapter 11 case. It specifies how each class of creditors will be treated -- how much they will receive, over what period, and from what source of funds. The plan typically provides for:

• Administrative claims (attorneys' fees, trustee fees, professional fees) -- paid in full at confirmation
• Priority claims (certain taxes, employee wages) -- paid in full, though they can be paid over time
• Secured claims (mortgages, equipment loans, vehicle loans) -- often restructured with modified terms
• Unsecured claims (credit cards, trade debt, personal loans) -- may receive partial payment, full payment, or nothing depending on available resources

In Subchapter V, the debtor has the exclusive right to file a plan -- creditors cannot file competing plans. The plan must be filed within 90 days of the order for relief, though the court routinely grants extensions for cause.

Why This Matters

The difference between 1191(a) and 1191(b) has major practical consequences:

Timing of discharge. Under 1191(a), the debtor receives a discharge immediately upon confirmation. Under 1191(b), the debtor does not receive a discharge until all plan payments are completed -- which could be 3 to 5 years later. During this period, the debtor remains under court supervision and must make all plan payments as promised.

Disposable income commitment. Under 1191(a), there is no requirement to devote all disposable income to the plan. The debtor and creditors negotiate the deal. Under 1191(b), the debtor must commit all projected disposable income for a period of 3 to 5 years, similar to the Chapter 13 requirement.

Retention of equity. Under both paths, the debtor retains ownership of the business. This is a major departure from traditional Chapter 11, where the absolute priority rule could force the owner to surrender equity to creditors. In Subchapter V, the owner keeps the business regardless of the confirmation path.

When and how you receive your discharge depends on the confirmation path and the type of Chapter 11 case:

Note: Certain debts remain nondischargeable regardless of the chapter. See 11 U.S.C. section 523(a).

Chapter 11 is significantly more expensive than Chapter 7 or Chapter 13, but Subchapter V has narrowed the gap considerably:

Quarterly U.S. Trustee fees are calculated on a sliding scale based on the total disbursements during each quarter. For a small business disbursing $15,000 to $75,000 per quarter, the fee is $650 per quarter. These fees continue until the case is closed or converted.

Many Chapter 11 attorneys in Kansas City require a retainer before filing, with the balance paid as an administrative expense of the estate (subject to court approval). All professional fees in Chapter 11 must be approved by the court, which reviews billing entries for reasonableness.

Subchapter V Timeline

1. Pre-filing preparation (2-6 weeks). Gather financial records, prepare schedules and statements, develop preliminary plan strategy. Identify which debts to restructure and how.
2. Day 1: Filing. Petition filed with the court. The automatic stay takes effect immediately, stopping all creditor collection activity. You continue operating as debtor in possession.
3. Days 1-14: Subchapter V trustee appointed. The U.S. Trustee appoints a standing Subchapter V trustee to the case. The trustee will facilitate plan negotiations between you and your creditors.
4. Day 30-45: 341 meeting of creditors. Brief hearing where the trustee and any creditors may ask questions about your business and finances. Similar to a Chapter 13 341 meeting but often with more business-specific questions.
5. Day 90: Plan filing deadline. You must file your proposed plan within 90 days. Extensions are commonly granted but the court expects the debtor to move promptly. No disclosure statement is required in Subchapter V.
6. Months 3-6: Creditor negotiations and voting. Creditors review the plan, the trustee facilitates negotiations, and impaired classes vote on the plan. The goal is consensual confirmation under 1191(a).
7. Months 6-12: Confirmation hearing. The court holds a hearing and, if the plan meets all requirements, enters a confirmation order. Under 1191(a), discharge is granted at this point.
8. Years 1-5: Plan payments. You make payments to creditors through the Subchapter V trustee according to the confirmed plan. You must also file regular financial reports.
9. Plan completion. After all plan payments are made, the case is closed. If confirmed under 1191(b), the discharge is entered at this point.

Kansas City businesses on the Missouri side file Chapter 11 in the U.S. Bankruptcy Court for the Western District of Missouri, located at 400 East 9th Street, Kansas City, MO 64106. Businesses on the Kansas side file in the U.S. Bankruptcy Court for the District of Kansas at 500 State Avenue, Kansas City, KS 66101.

Key local considerations:

• Monthly Operating Reports (MORs). The W.D. Mo. requires monthly financial reports filed with the court and the U.S. Trustee throughout the pendency of the case. These reports include income, expenses, cash balances, and a comparison to projections. Failure to file MORs can result in case dismissal or conversion.
• U.S. Trustee oversight. The Office of the U.S. Trustee for Region 13 (covering W.D. Mo.) actively monitors Chapter 11 cases. The U.S. Trustee reviews fee applications, monitors MOR filings, and may file motions to dismiss or convert cases that are not progressing.
• Local rules. Both W.D. Mo. and D. Kan. have local bankruptcy rules that supplement the Federal Rules of Bankruptcy Procedure. These cover filing requirements, hearing procedures, and plan confirmation standards. Your attorney should be familiar with these local practices.

Chapter 11 (particularly Subchapter V) is typically the best option when:

• The business is viable but is crushed by debt it cannot service on current terms
• The business has valuable assets, contracts, employees, or customer relationships worth preserving
• Debts exceed Chapter 13 limits (making Chapter 13 unavailable)
• The business entity is a corporation, LLC, or partnership (which cannot file Chapter 13)
• You need to reject burdensome leases or contracts
• Creditors are unwilling to negotiate outside of court
• You need the protection of the automatic stay to stop lawsuits and collection activity while reorganizing

Chapter 11 is generally not the right choice when the business has no realistic path to profitability, when total debts are small enough for Chapter 13 (if the owner is a sole proprietor), or when the cost of the Chapter 11 case would consume resources better used for creditors or operations.