Small Business Bankruptcy in Kansas City

Chapter 7 is appropriate when the business cannot be saved and the goal is an orderly wind-down. A court-appointed trustee takes control of business assets, sells them, and distributes the proceeds to creditors according to priority.

Key Points for Kansas City Businesses

• Corporations and LLCs do not receive a discharge in Chapter 7. The entity is simply dissolved. However, filing ensures creditors are paid in the correct priority order and provides an orderly conclusion
• Sole proprietors can receive a personal discharge of qualifying business debts. Business and personal debts are combined in a single case
• Partnerships do not receive a discharge, but individual partners may need to file separately for personal liability
• The automatic stay immediately stops lawsuits, garnishments, and collection actions against the business
• Employees become unsecured creditors for unpaid wages (up to $15,150 per employee is a priority claim)
• Business leases can be rejected, limiting landlord claims

Who Qualifies for Subchapter V?

• Must be engaged in commercial or business activities (not just holding investment property)
• Aggregate non-contingent, liquidated debts must not exceed $7.5 million
• At least 50% of debts must arise from commercial or business activities
• Available to individuals, corporations, LLCs, and partnerships
• Must elect Subchapter V at the time of filing

How Subchapter V Differs from Traditional Chapter 11

• No creditors committee -- Saves tens of thousands in professional fees that the debtor would otherwise pay
• No disclosure statement -- Eliminates months of delay and a major litigation flashpoint
• Plan filed in 90 days -- The debtor must file a plan within 90 days (extensions are available but the timeline is much faster)
• Subchapter V trustee -- A trustee is appointed but does not take control. The trustee facilitates negotiations, monitors compliance, and distributes payments
• Debtor remains in possession -- You keep running your business throughout the case
• Cramdown without absolute priority -- The debtor can confirm a plan over creditor objections without the absolute priority rule, meaning owners can retain equity even if unsecured creditors are not paid in full, as long as the plan commits all projected disposable income for 3-5 years
• No quarterly U.S. Trustee fees -- Traditional Chapter 11 requires quarterly fees based on disbursements; Subchapter V does not

The Subchapter V Trustee's Role

In the Western District of Missouri, the U.S. Trustee appoints a Subchapter V trustee for each case. The trustee's responsibilities include:

• Appearing at the status conference (held within 60 days of filing)
• Facilitating the development of a consensual plan
• Making plan distributions to creditors if the plan is confirmed under the non-consensual (cramdown) provisions
• Monitoring plan compliance and filing reports
• Ensuring the debtor files required reports and tax returns

For more detail on plan confirmation: section1191.org. On discharge provisions: section1192.org.

If you operate as a sole proprietor (no separate legal entity), Chapter 13 can be a simpler and less expensive alternative to Chapter 11. Your personal and business debts are combined in one case.

Advantages of Chapter 13 for Sole Proprietors

• Lower cost -- Attorney fees for Chapter 13 are significantly less than Chapter 11
• Simpler process -- No disclosure statement, no creditors committee, familiar Chapter 13 procedures
• Continue operating -- Your business can keep running while you make plan payments
• Catch up on debts -- Cure arrears on equipment loans, vehicle loans, or business property through the plan
• Debt limits apply -- Combined personal and business debts must fall within Chapter 13 limits

When Chapter 11 Is Better Than Chapter 13

• Your debts exceed Chapter 13 limits
• You need to reject business contracts or leases
• You have complex creditor disputes that need the Chapter 11 framework
• The business is an LLC, corporation, or partnership (Chapter 13 is only for individuals)