Five Key Debtor Duties in Chapter 11 Bankruptcy
Filing for Chapter 11 bankruptcy involves substantially more effort than the filing of the bankruptcy petition and related documents. Upon filing for Chapter 11 relief, a debtor has new duties and is commonly referred to as a “debtor-in-possession.” The debtor has fiduciary and statutory responsibilities to preserve and maintain the bankruptcy estate to maximize value for all creditor constituencies. These duties range from financial reporting to maintenance of insurance and post-petition tax compliance. The debtor’s compliance with these duties is monitored by the United States Trustee’s Office (“UST”). Listed below are five key duties for every debtor in Chapter 11 bankruptcy.
- Quarterly Fees Paid to the UST
Chapter 11 requires the payment of statutory fees. Title 11 U.S.C. § 1930(a)(6) requires that in addition to the filing fee which is paid to the Court, a quarterly fee must be paid to the UST for each quarter until the case is closed, dismissed, or converted to another chapter. The quarterly fee is based on the amount of disbursements made by the debtor during the quarter.
- Bank Accounts
Upon filing of the Chapter 11 petition, the debtor must immediately close pre-petition bank accounts and open new “Debtor-in-Possession” bank accounts. All income must flow through the debtor-in-possession account(s).
The debtor must maintain without interruption all insurance customarily carried in the debtor’s industry or required by law or regulation. The debtor must immediately notify the UST of any lapse, cancellation, modification, or renewal of insurance coverage. Failure by the debtor to maintain appropriate insurance that poses a risk to the estate or to the public is cause for conversion or dismissal of the case. See 11 U.S.C. § 1112(b)(4)(C).
The debtor must remain current on the payment of all post-petition federal, state, and local taxes and file all tax returns on a timely basis. Failure by the debtor to timely pay post-petition taxes or to file post-petition tax returns is cause for conversion or dismissal of the case. See 11 U.S.C. § 1112(b)(4)(I).
- Monthly Operating Reports
All debtors must file with the Court not later than the 20th day of each month a written financial report for the entire preceding calendar month.