Chapter 11 cases are more complicated bankruptcy cases in many ways and much more is required of a debtor in Chapter 11 than in a chapter 7 or chapter 13 case. The debtor's failure to comply with the operating and reporting requirements set forth below may result in the dismissal or conversion of a chapter 11 case to a case under chapter 7 of the Bankruptcy Code. Perhaps the most important early decision a business can make when contemplating bankruptcy, is selecting bankruptcy counsel that is experienced with successfully navigating a debtor through a chapter 11 case.
The United States Trustee is required to supervise the administration of chapter 11 cases pursuant to 28 U.S.C. §586(a)(3) and has established operating guidelines for chapter 11 cases. These operating guidelines and reporting requirements for chapter 11 small business cases must be followed so that the United States Trustee can properly supervise the administration of this case.
Books and Records
The debtor's books and records must be closed as of the petition filing date. New books and records must be set up to reflect postpetition business.
Upon the filing of the petition, the debtor must immediately close all of its existing bank accounts and open new bank accounts which must be (i) designated as debtor in possession accounts ("DIP Accounts") and (ii) maintained subject to the following conditions:
- All money of the bankruptcy estate must be deposited in the DIP Accounts, provided that (i) one DIP Account shall be maintained solely for the purpose of setting aside estate monies required for the payment of taxes, including, but not limited to, federal, state, and
local payroll taxes, and (ii) the debtor must maintain a separate DIP Account for cash collateral in accordance with Section 363(c)(4) of the Bankruptcy Code.
- All DIP Accounts must be maintained with financial institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). If the aggregate DIP Interest-Bearing Account balances with any one financial institution are expected to exceed the current FDIC insurance limits of $250,000.00 per depositor, the debtor must immediately contact the United States Trustee to discuss how the debtor plans to comply with the Bankruptcy Code Section 345 requirement concerning the collateralization of uninsured deposits.
- Checks for all DIP Accounts must bear the name of the debtor, the designation "Debtor in Possession," the bankruptcy case number, and the type of account and must be prenumbered by the bank. The debtor must send to the United States Trustee a voided original check for each opened DIP Account.
- The debtor must serve copies of all monthly bank statements on the United States Trustee within 15 days of receipt from the bank.
Maintenance and Proof of Insurance
The debtor is required to maintain the following insurance coverage, as appropriate: general comprehensive liability; property loss from fire, theft, water, or other extended coverage; workers' compensation; vehicle; products liability; fidelity bonds for employees; and such other coverage as is customary in the debtor's business.
Within 15 days after the filing of the petition, the debtor shall provide to the United States Trustee proof of its insurance coverage. Such proof of coverage shall consist of certificates of insurance or other verified documents showing that each policy of insurance required for the estate is in full force and effect, and shall disclose the type and extent of coverage, effective dates, name of insurance carrier, and name, address, and telephone number of agent. The debtor is responsible for including the address of the United States Trustee on the cancellation notice for each insurance policy. Upon the expiration or other termination of any coverage, the debtor shall immediately provide the United States Trustee with proof of replacement coverage. The debtor is responsible for making arrangements with all insurers to provide notice to the United States Trustee of any payments made under all policies.
All tax returns and reports for postpetition obligations shall be timely filed and accompanied by payment in full of any liability. Such taxes include, but are not limited to, federal and state payroll withholding taxes, FICA taxes, federal and state unemployment insurance, real property taxes, and sales and use taxes. The debtor shall timely deposit sufficient funds in the DIP tax account to pay any payroll tax liability. The debtor shall timely file all prepetition tax returns but shall not pay the tax due.
Initial Reporting Requirements
Within 15 days of the filing date of the petition, the debtor shall provide the United States Trustee the documents listed in Form IR or IR (RE). This obligation does not pertain to small business cases that are defined under 11 U.S.C. §101(51D).
- United States Trustee Quarterly Fees
Debtors in chapter 11 cases must pay a quarterly fee to the United States Trustee Program for each calendar quarter, or portion thereof, between the date of filing the petition and the date the court enters a final decree closing the case, dismisses the case, or converts the case to another chapter in bankruptcy. The quarterly fee is calculated by totaling the debtor’s disbursements as reported on the Monthly Operating Reports for the three-month calendar quarter, or portion thereof, according to the following chart. The quarterly fee amount will be estimated if disbursements for all of the months of a calendar quarter that the case is open have not been reported to the United States Trustee. The estimated fee is based on: a) reported disbursement history, b) initial financial data submitted when the case was filed, or c) an estimation done by the United States Trustee office. If you calculate the fee to be less than the estimated quarterly fee on the statement, you must submit actual disbursement reports supporting your calculation to the bankruptcy court and the United States Trustee Office. A minimum fee of $325.00 is due even if there are no disbursements during a calendar quarter. There is no proration of the fee.
TOTAL QUARTERLY DISBURSEMENTS QUARTERLY FEE
$0 to $14,999.99 $325
$15,000 to $74,999.99 $650
$75,000 to $149,999.99 $975
$150,000 to $224,999.99 $1,625
$225,000 to $299,999.99 $1,950
$300,000 to $999,999.99 $4,875
$1,000,000 or more 1% of quarterly
disbursements or $250,000, whichever is less
Quarterly fees are due no later than one month following the end of each calendar quarter. Failure to pay quarterly fees may result in the conversion or dismissal of the case. Payment of that quarter’s fees and any past due fees and interest, if applicable, must be made before the effective date of a confirmed plan of reorganization and quarterly fees will continue to accrue until entry of the final decree, or until the case is converted or dismissed. Failure to pay these fees may result in a motion by the United States Trustee to convert the case to a chapter 7 case.
The debtor will receive a bill or statement from the Executive Office for United States Trustees, Washington, D.C., for each calendar quarter, prior to the payment due date. A check for the quarterly fee, made payable to “United States Trustee”, should be mailed with the tear-off portion of the statement form to:
United States Trustee Payment Center
P.O. Box 6200-19
Portland, OR 97228-6200
The address shown above is a lockbox at a bank. It may NOT be used for service of process, correspondence or any purpose other than payment of quarterly fees. Any other correspondence or documents sent to the lockbox other than the payment form will be destroyed.
Overnight Courier Deliveries (i.e. FedEx or UPS) should be sent to:
Attn: Government Lockbox - US Trustee Payment Center 6200-17 17650
NE Sandy Blvd.
Portland, OR 97230
The debtor is responsible for timely payment of the quarterly fee. Failure to receive a bill from the Executive Office for United States Trustees does not excuse the debtor from timely payment. Failure to pay the quarterly fee is cause for conversion or dismissal of the chapter 11 case pursuant to 11 U.S.C. § 1112(b)(4)(K) (for cases filed on or after October 17, 2005) or 11 U.S.C. §1112(b)(10) (for cases filed before October 17, 2005).
NOTICE TO DEBTORS MAKING PAYMENT BY CHECK
Payment of the quarterly fee by check will be converted to an electronic funds transfer (“EFT”). This means we will copy your check and use the account information on it to electronically debit your account for the amount of the check. The debit from your account will usually occur within 24 hours and will be shown on your regular account statement.
Your original check will not be returned. We will destroy the original check, but we will keep the copy of it. If the EFT cannot be processed for technical reasons, you authorize us to process the copy in place of your original check. If the EFT cannot be completed because of insufficient funds, we may try to make a transfer up to 2 times.
On January 26, 1996, Congress enacted Public Law 104-99, which extended the accrual of quarterly fees beyond confirmation until a case is converted, dismissed, or closed. The required remittance is based on all disbursements made by the debtor during each quarter. The fee schedule set forth above equally applies to post-confirmation disbursements.
In order for the United States Trustee to monitor the appropriate receipt of quarterly fees, you are required to complete the "Post-confirmation Quarterly Summary Report."
NOTICE OF INTEREST ASSESSMENT
Pursuant to 31 U.S.C. §3717 the United States Trustee Program assesses interest on unpaid chapter 11 quarterly fees charged in accordance with 28 U.S.C. §1930(a)(6). Interest assessed on past due amounts will appear on the quarterly statements mailed to debtors. The interest rate charged is the rate in effect as determined by the Treasury Department at the time the chapter 11 account becomes past due. If payment of the full past due amount is received within 30 days of the date of the notice of the initial interest assessment, the interest will be waived.
FAILURE TO PAY THE QUARTERLY FEE IS CAUSE FOR CONVERSION OR DISMISSAL OF A CHAPTER 11 CASE, PURSUANT TO 11 U.S.C. §1112(b)(4)(K)
Pursuant to the Debt Collection Improvement Act of 1996, Public Law 104-134, Title III, §31001(i)(3)(A), 110 Stat. 1321-365, codified at 31 U.S.C. §3701, the United States Trustee intends to use the debtor's Taxpayer Identifying Number ("TIN"), as reported by the debtor or debtor's counsel in connection with the chapter 11 bankruptcy proceedings, for the purpose of collecting and reporting on any delinquent debt, including chapter 11 quarterly fees, that are owed to the United States Trustee.
The United States Trustee will provide the debtor's TIN to the Department of Treasury for its use in attempting to collect overdue debts. Treasury may take the following steps: (1) submit the debt to the Internal Revenue Service Offset Program so that the amount owed may be deducted from any payment made by the federal government to the debtor, including but not limited to tax refunds; (2) report the delinquency to credit reporting agencies; (3) send collection notices to the debtor (4) engage private collection agencies to collect the debt; and (5) engage the United States Attorney's office to sue for collection. Collection costs will be added to the total amount of the debt.
Pre-Petition and Postpetition Debt
The debtor may not pay any pre-petition obligations unless authorized by the Bankruptcy Code or by Court order. The debtor must pay all obligations arising out of its operations after the filing of the petition in full when due.
Sale of Estate Property and Incurring Debt
The debtor must obtain prior approval of the Court to use, sell, or lease property of the estate, except in the ordinary course of business. The debtor may not use cash collateral, as defined by 11 U.S.C. §363(a), without the consent of the secured creditor or approval by the Court.
The debtor must obtain Court approval before it may incur unsecured or secured debt other than in the ordinary course of business.
Employment and Compensation of Professionals
The employment of professionals (including, but not limited to lawyers, accountants, appraisers, or auctioneers) must be approved by the Court 11 U.S.C. §327. Generally, professionals will not be compensated for services rendered prior to Court approval. No payments may be made to such professionals without Court authorization after notice to creditors and a hearing 11 U.S.C. §330. A corporate debtor must be represented by an attorney; such debtor may not appear pro se.
Change of Address or Telephone Number
The debtor must notify the United States Trustee and the Bankruptcy Court in writing of any change of address or telephone number within 10 days of the change.