Chapter 11 and small business bankruptcy: how reorganization works

What is Chapter 11 bankruptcy?

In Chapter 11 the debtor usually stays in possession. That means it keeps control of its assets and may keep operating the business, without a case trustee. A plan of reorganization is proposed, creditors whose rights are affected may vote on it, and the court may confirm it if it gets the required votes and meets the legal requirements.1

Debtors engaged in business may prefer to stay open and avoid liquidation under Chapter 7. The federal courts point them to Chapter 11, and note that sole proprietorships may also be eligible for Chapter 13.4

How does a Chapter 11 case work, step by step?

1. The case begins with a petition filed with the bankruptcy court, along with schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs.1
2. The debtor stays in possession and may keep operating the business.1
3. The debtor in possession accounts for property, examines claims and files reports such as monthly operating reports. The U.S. trustee monitors compliance and conducts the meeting of creditors.1
4. Generally, a written disclosure statement and a plan of reorganization are filed with the court.1
5. Creditors whose claims are impaired, meaning their contractual rights are changed or they will be paid less than the full value of their claims, vote on the plan by ballot.1
6. The court holds a confirmation hearing.1

If the debtor in possession does not comply with the reporting requirements or court orders, the U.S. trustee may ask the court to convert the case to another chapter or dismiss it.1

Whose assets are involved: the business's or the owner's?

The table describes the business's own case. A business debt that you personally guaranteed is a separate question, covered in our guide to business debts and personal guarantees.

What is Subchapter V for small businesses?

Subchapter V is a streamlined form of Chapter 11 for small businesses. It was created by the Small Business Reorganization Act of 2019, which took effect February 19, 2020.2

For cases filed on or after April 1, 2025, a Subchapter V debtor must be engaged in business and have $3,424,000 or less in combined secured and unsecured debts, at least half of which came from that business. A temporary higher limit expired on June 21, 2024.1 5 2

• The U.S. Trustee Program appoints a trustee in every Subchapter V case. Most other Chapter 11 cases do not get one.2
• Only the debtor may file a plan, and a separate disclosure statement may not be needed.1
• A creditors' committee is appointed only if cause is shown.1
• A plan can be confirmed if it does not discriminate unfairly, is fair and equitable, and pays all of the debtor's projected disposable income into the plan for a three to five year period.1
• Deadlines are accelerated, so these cases move faster than a traditional Chapter 11 case.1

Can an individual file Chapter 11?

Yes. For an individual, Chapter 11 has some similarities to Chapter 13: the plan may be funded from future earnings, and it cannot be confirmed over a creditor's objection unless it commits all of the debtor's disposable income over five years or pays the claim in full, with interest, over a shorter time.1

Chapter 13, the other plan-based chapter for individuals, has debt limits. For cases filed on or after April 1, 2025, unsecured debts must be under $526,700 and secured debts under $1,580,125.6 5

Nearly every individual who files, under any chapter, must get credit counseling first. The U.S. Trustee Program says that includes people whose debts are primarily business debts.4 7 8

What if most of your personal debt came from a business?

This matters for owners who file their own Chapter 7 case. The Chapter 7 rule that lets a court dismiss a case as an abuse, which includes the means test, applies to an individual whose debts are primarily consumer debts. A consumer debt is one an individual takes on primarily for a personal, family or household purpose.9 10

So the purpose of each debt matters. Sorting your debts into consumer and business debts, and working out which side is larger, is something to go through with a lawyer before you rely on it.9 10

In Chapter 7 only individuals receive a discharge. Partnerships and corporations do not.4

What does Chapter 11 cost in court fees, and do you need a lawyer?

The court fees are a $1,167 filing fee plus a $571 administrative fee, $1,738 in total (administrative fee effective December 1, 2023). Professional fees are a separate cost that this page does not estimate.1 3

Businesses such as corporations, partnerships and LLCs generally cannot file for bankruptcy without an attorney. That comes from bankruptcy court local rules, so check with your local bankruptcy court. Individuals are not subject to that requirement, though the federal courts strongly recommend getting advice from a qualified attorney.11 12 13