What is Chapter 10?

The Chapter 10 form of bankruptcy is one of the types of financial protection that a company may seek from the court system. As part of the US Bankruptcy code, the Chapter 10 allows a small company with financial problems to request court protection while a workable plan is prepared to help the corporation continue to operate and move past the current financial burden. There are some restrictions on the type of business that may apply for Chapter Ten protection, along with well-defined procedures that must be followed in order to satisfy the needs of the court.

In order to qualify for protection under a Chapter 10, a company must present full disclosure of current financial conditions to the court for review. Along with working in cooperation with the courts, the company must also be willing to develop a debt reorganization plan that will allow for the orderly retirement of the current outstanding debt. If the court finds that the company meets the qualifications for a Chapter 10 and that the reorganization plan is workable, the court will grant the protection and a appoint a manager for the plan. The court-appointed manager will serve as an ongoing liaison between the court of jurisdiction and the Debtor Company.

One important point to keep in mind is that the provisions of Chapter 10 protection are geared more toward aiding small businesses rather than huge corporations. To this end, there are limitations on the amount of debt that can be included under the auspices of a Chapter 10 reorganization plan. Generally, the accumulated debt may not be more than $2,500,000.00 in United States dollars. In addition, the plan for reorganization will call for the schedule of payments received by the court to not exceed a period of three years. In the event that the company owes more money or will require a reorganization plan with a duration that exceeds three years, other forms of bankruptcy should be explored.