What Chapter 11 does
In Chapter 11, the business usually stays in control of its operations as a debtor in possession. When the case is filed, the automatic stay generally stops lawsuits, collection, and foreclosure against the business while the case is open.
The business then proposes a plan to restructure its debts. A plan may stretch out payments, reduce what some creditors receive, reject leases or contracts that no longer make sense, and set terms for secured lenders. The court must approve the plan.
Traditional Chapter 11 can be expensive and slow, with committees, disclosure requirements, and creditor voting. For many smaller companies, Subchapter V is a better fit.
Chapter 11 is also available to some individuals whose debts are too large for Chapter 13. Those cases follow many of the same rules and require the same careful preparation.
How Subchapter V is different
Subchapter V was created for small businesses. Businesses with debts under a set limit, and that meet other conditions, may choose it. In general terms, it offers:
- A faster schedule, with a plan due soon after filing
- A trustee who oversees the case and helps the business and creditors work toward a plan
- Usually no creditors’ committee
- Only the business may propose a plan
- A path to plan approval even without every creditor class voting yes, if the plan commits the business’s disposable income to payments for a set period and meets other tests
- The ability, in many cases, for owners to keep their ownership
The debt limit and other rules have changed over time, so eligibility must be checked under the law in effect when the case is filed.
When Chapter 11 may make sense
Chapter 11 may be worth considering when:
- The business has steady customers and can make money if its debt is restructured
- A lender is threatening to take equipment, inventory, or real estate the business needs
- A lawsuit, judgment, or tax debt threatens to shut the business down
- The business is locked into a lease or contract it cannot afford
If the business cannot be profitable even after restructuring, closing it, selling it, or a Chapter 7 case may be the better course. We will tell you the hard truth about which path fits.
Personal guarantees and the owners
A business bankruptcy protects the business, not its owners. If you personally guaranteed a loan, a lease, or a credit line, the creditor may still pursue you under that personal guarantee. Some owners need to consider personal options at the same time. Tax debts such as unpaid payroll taxes can also become the personal responsibility of owners or officers in some cases. Bring every personal guarantee you signed to your consultation.
Getting ready
A Chapter 11 case moves quickly once it is filed, so preparation matters. Gather:
- Recent tax returns and financial statements
- Bank statements and a current list of accounts receivable
- A list of all creditors, with amounts and any collateral
- Leases, loan documents, and major contracts
- A realistic cash flow forecast
- Information about any lawsuits, judgments, or tax notices
During the case, the business must keep accurate records, file regular reports, use separate debtor-in-possession bank accounts, and stay current on taxes and insurance.
It also helps to think through the hard questions before filing. Which customers and contracts are profitable? Which locations, leases, or product lines lose money? What would the business look like with smaller payments to lenders? A plan built on honest numbers has a better chance of being approved and completed than one built on hope.
Other options to consider
Not every struggling business needs bankruptcy. Other paths may include negotiating directly with lenders, a workout or forbearance agreement, selling assets or the business, bringing in a new investor, or settling a lawsuit. If a dispute with a customer, partner, or vendor is behind the cash problem, business litigation or negotiation may address the cause. We will talk through these options before you decide.
The earlier you get advice, the more of these options are still open.
Fees and next steps
We explain our fee in writing before you hire us. In Chapter 11 cases, the court reviews attorney fees.
Call (336) 281-2008 or request a consultation online. Bring the documents listed above, or as many as you have. Hablamos español.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
This page is general information about North Carolina law, not legal advice. Every case is different, and no lawyer can promise a result.
Questions people ask us
What is Subchapter V bankruptcy?
It is a simpler, faster form of Chapter 11 for small businesses that meet a debt limit and other conditions. A trustee helps oversee the case, only the business can propose a plan, and owners can often keep their ownership if the plan meets the law's tests.
Can my business keep operating during Chapter 11?
Usually, yes. The business generally continues to run as a debtor in possession. It must follow reporting rules and court requirements while the case is open.
Does a business bankruptcy protect me from my personal guarantee?
Generally, no. The business's case protects the business. A creditor may still pursue an owner who personally guaranteed a debt, so owners may need to consider their own options.
Is Chapter 11 only for large companies?
No. Many small businesses use Chapter 11, especially through Subchapter V, which was designed for them. Eligibility depends on the business's debts and other conditions at the time of filing.