Chapter 11 Bankruptcy: Filing, Reorganization Plan, and Discharge

Chapter 11 bankruptcy is a court-supervised reorganization process that lets a struggling business keep operating while it restructures its debts, rather than closing down and selling off assets. The business, or in some cases an individual with debts too large for Chapter 13, stays in control of day-to-day operations under court oversight, negotiates new terms with creditors, and ideally emerges on firmer financial footing. The court filing fee alone is $1,738, and professional fees typically push the real cost much higher.

Who Can File

Most business entities qualify. Corporations, partnerships, LLCs, and sole proprietors can all file Chapter 11. Railroads have their own subchapter, and certain banking institutions organized under the Federal Reserve Act are eligible. Stockbrokers and commodity brokers are the main exclusion; they are channeled into separate liquidation procedures.¹

Individuals usually end up in Chapter 11 only when their debts exceed the Chapter 13 ceiling. As of 2026, Chapter 13 is available to people with secured debts below $1,580,125 and unsecured debts below $526,700. Anyone above those thresholds who wants to reorganize instead of liquidate needs Chapter 11.

Individual filers also have to complete a credit counseling briefing from an approved nonprofit agency within 180 days before filing. Courts can waive the requirement in emergencies and give you up to 30 days after filing to finish, and exemptions exist for people with disabilities or those serving in combat zones.²

Subchapter V for Small Businesses

Small businesses with total debts of $3,024,725 or less can file under Subchapter V, a streamlined version of Chapter 11 created by the Small Business Reorganization Act of 2019.³ Choosing between regular Chapter 11 and Subchapter V is one of the first strategic decisions a small-business debtor faces.

Subchapter V eliminates the creditors’ committee, imposes a strict 90-day deadline for filing a reorganization plan, and appoints a dedicated trustee whose role is to help the debtor reach a workable deal rather than take over the business. The trustee assesses viability, facilitates plan negotiations, and may handle distributions to creditors once the plan is confirmed. With no creditors’ committee and a faster timeline, professional fees run noticeably lower than in a standard Chapter 11 case.

The Automatic Stay

The moment the petition is filed, the automatic stay takes effect. Creditors have to stop all collection activity immediately: no new lawsuits, no foreclosures, no repossessions, no collection calls.⁴ The stay also blocks enforcement of pre-filing judgments and prevents creditors from creating or perfecting liens against the debtor’s property.

The protection is not unconditional. A secured creditor whose collateral is losing value can ask the court to lift the stay, and the court will grant that relief unless the debtor provides “adequate protection.” That usually means one of three things: periodic cash payments to offset the collateral’s decline, a replacement lien on other property, or some other arrangement the court finds equivalent.⁵ A secured lender watching a depreciating asset has strong incentives to push hard on this issue early.

Running the Business as Debtor in Possession

In most Chapter 11 cases, existing management stays in control. The debtor becomes a “debtor in possession” and holds essentially all the powers of a bankruptcy trustee. It can continue operating, use property of the estate, and make ordinary-course decisions without asking the court first.⁶ Anything outside ordinary operations, like selling a major asset or signing a long-term lease, needs court approval.

The trade-off is a fiduciary duty to creditors. The debtor in possession has to act in their interest, not just its own. If the court finds fraud, dishonesty, or gross mismanagement, it can strip the debtor of control and appoint an independent trustee.

Hiring Professionals

Attorneys, accountants, and financial advisors working for the estate have to be approved by the court before they start billing. Each must be “disinterested,” meaning they do not hold or represent an interest that conflicts with the estate.⁷ Salaried professionals already on staff before filing can generally continue working without separate court approval. A prior attorney can be retained for a specific limited purpose, but not to represent the estate broadly.

Obtaining New Financing

Most businesses in Chapter 11 need cash to keep operating. The Bankruptcy Code sets up a hierarchy for new credit. A debtor can take on unsecured debt in the ordinary course of business without special permission. For anything more, court approval is required, and the debtor has to show it tried and failed to get financing on less favorable terms before moving up each rung.⁸

At the top of the ladder is “priming” financing, where a new lender gets a lien that jumps ahead of existing secured creditors. Courts allow this only when no other financing is available and the existing lienholders receive adequate protection. These debtor-in-possession financing deals are often the most heavily negotiated piece of the early case, because their terms effectively set the boundaries for the entire reorganization.

Documents, Forms, and Costs

Filing requires a stack of paperwork that gives the court and creditors a full picture of the debtor’s finances. Individuals use Official Form 101, and businesses use Official Form 201.⁹ Along with the petition, the debtor files:

Schedules of assets and liabilities, inventorying everything the debtor owns and owes.
A statement of financial affairs covering transactions and business relationships from the years before filing.
Income and expenditure statements showing monthly cash flow.
A list of the twenty largest unsecured creditors, used to form the creditors’ committee.

The court filing fee totals $1,738, made up of a $1,167 case filing fee and a $571 administrative fee.¹⁰ That number is deceptive. Attorney retainers for Chapter 11 commonly start between $10,000 and $30,000, and total professional fees over the life of a case can reach well into six figures for any business of real size. Missing document deadlines can get the case dismissed outright.

Right after filing, debtor’s counsel typically files emergency motions asking the court to let the business keep running. The most common ask for authority to use cash on hand and receivables (“cash collateral”), to pay pre-filing employee wages, to maintain insurance, and to pay vendors whose products or services are essential. These are heard on an expedited basis because any delay can cripple a business already in trouble.

Ongoing Obligations

The debtor in possession submits monthly operating reports to the U.S. Trustee throughout the case, tracking income, expenses, cash balances, and other financial data.¹¹ Reporting continues on a different form after plan confirmation.

Chapter 11 debtors also owe quarterly fees to the U.S. Trustee, scaled to the money disbursed each quarter. Starting April 1, 2026, the brackets are:

Disbursements up to $62,624: $250 flat fee.
$62,625 to $999,999: 0.4% of disbursements.
$1,000,000 to $27,777,722: 0.9% of disbursements.
$27,777,723 or more: $250,000 flat fee.

The Bankruptcy Administration Improvement Act of 2025 raised the third bracket’s rate from 0.8% to 0.9%.¹² Fees are due within one month after each quarter ends, and falling behind is a statutory ground for conversion to Chapter 7 or dismissal.¹³

The Creditors’ Committee

The U.S. Trustee appoints an official committee of unsecured creditors soon after the case opens. The committee ordinarily consists of the seven largest unsecured claimants willing to serve.¹⁴ It wields real influence: it can investigate the debtor’s conduct, hire its own professionals at the estate’s expense, and negotiate directly over the reorganization plan. Creditors not on the committee are entitled to information and input through it. Subchapter V cases skip this committee entirely.

Building and Confirming a Reorganization Plan

The plan is where the case either succeeds or falls apart. The debtor has the exclusive right to file a plan during the first 120 days after the order for relief. If it files within that window, it then has 180 days to get creditors on board.¹⁵ Courts can extend both deadlines for good cause, but there are hard caps: 18 months for exclusivity and 20 months for acceptance. Past those, any party in interest, including creditors, can file a competing plan.

Every plan comes with a disclosure statement giving creditors enough information to make an informed vote. Creditors are grouped into classes based on the nature of their claims. For a class to accept the plan, creditors holding at least two-thirds of the dollar amount of claims in that class and more than half in number must vote yes.¹⁶

What the Court Looks For

Even with creditor approval, the court independently reviews the plan. Two tests matter most. The feasibility test asks whether the plan is realistic and not likely to end in another bankruptcy. The best-interests test requires every creditor to receive at least as much under the plan as they would get in a Chapter 7 liquidation.¹⁷

Cramdown and the Absolute Priority Rule

If one or more classes reject the plan, the debtor can still seek confirmation through a “cramdown.” The court will approve a plan over a dissenting class’s objection if the plan does not unfairly discriminate and is “fair and equitable” to that class.¹⁷

For unsecured creditors, “fair and equitable” means the absolute priority rule applies: no junior class, including equity holders, can receive anything under the plan unless every senior class is paid in full. If owners want to keep their equity while unsecured creditors take a cut, the plan cannot be crammed down over those creditors’ objections unless the owners contribute new capital that is substantial, necessary to the plan’s success, and reasonably equivalent to the value they retain. The Supreme Court has also required that the new-value contribution be subject to a market test, so old equity cannot quietly buy back in at a bargain price.

Discharge

Confirmation of the plan generally discharges a corporate debtor from all pre-confirmation debts, whether or not a creditor filed a claim and whether or not that creditor voted for the plan.¹⁸ The plan replaces the original debt agreements, and the new terms govern going forward.

Individuals are treated differently. For an individual debtor, confirmation alone does not trigger a discharge. The court holds the discharge until the debtor completes all payments required under the plan. A hardship discharge is available if the debtor falls short of full payments but has already distributed at least as much as creditors would have received in a Chapter 7, and modifying the plan is not feasible.¹⁸ A corporate debtor can move on right after confirmation; an individual may be making plan payments for years before the discharge takes effect.

When a Case Fails

Not every reorganization works. The court can convert the case to Chapter 7 liquidation or dismiss it entirely if the debtor cannot keep the case on track. The statute lists more than a dozen specific grounds, including:

Continuing losses with no realistic prospect of recovery.
Gross mismanagement of the estate.
Failure to file a disclosure statement or plan on time.
Unpaid quarterly fees to the U.S. Trustee.
Failure to pay taxes that come due after the filing date.
Unauthorized use of cash collateral that causes substantial harm.

The court weighs whether creditors are better served by conversion to Chapter 7 or by dismissal, which lifts the automatic stay and lets creditors pursue their own remedies.¹³ Confirmation does not end that risk either: materially defaulting on plan terms or failing to complete the plan can still trigger conversion or dismissal. Most successful Chapter 11 cases run roughly six to eighteen months from filing to confirmation, with payments to creditors continuing for years after. Cases that drag past that without progress tend to end badly.

1
Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
2
Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
3
United States Department of Justice. Subchapter V
4
Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay
5
Office of the Law Revision Counsel. 11 USC 361 – Adequate Protection
6
govinfo.gov. 11 USC 1107 – Rights, Powers, and Duties of Debtor in Possession
7
Office of the Law Revision Counsel. 11 US Code 327 – Employment of Professional Persons
8
Office of the Law Revision Counsel. 11 USC 364 – Obtaining Credit
9
United States Courts. Voluntary Petition for Individuals Filing for Bankruptcy
10
United States Courts. Bankruptcy Court Miscellaneous Fee Schedule
11
United States Department of Justice. Chapter 11 Operating Reports
12
Congress.gov. S.3424 – Bankruptcy Administration Improvement Act of 2025
13
Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal
14
Office of the Law Revision Counsel. 11 USC 1102 – Creditors and Equity Security Holders Committees
15
Office of the Law Revision Counsel. 11 US Code 1121 – Who May File a Plan
16
Office of the Law Revision Counsel. 11 USC 1126 – Acceptance of Plan
17
Office of the Law Revision Counsel. 11 US Code 1129 – Confirmation of Plan
18
Office of the Law Revision Counsel. 11 USC 1141 – Effect of Confirmation