To file bankruptcy on a business, you choose between Chapter 7 liquidation and Chapter 11 reorganization, prepare a petition along with detailed financial schedules, and submit everything to the federal bankruptcy court in the district where the business is located or incorporated. Filing fees run $338 for Chapter 7 and $1,738 for Chapter 11,1United States Courts. Bankruptcy Court Miscellaneous Fee Schedule and attorney costs typically add far more on top. The right chapter, and even whether bankruptcy is the right move at all, depends on your business structure, your debt load, and whether you plan to shut the doors or keep operating.
Choosing Between Chapter 7 and Chapter 11
Chapter 7 is for businesses that are done operating. A court-appointed trustee takes control, sells everything of value, and distributes the proceeds to creditors in the priority order set by federal law.2Office of the Law Revision Counsel. 11 USC Ch 7 – Liquidation When the trustee finishes, the company ceases to exist. For a corporation, LLC, or partnership, there is no path back to operations after a Chapter 7 filing.
Chapter 11 keeps the business open while it restructures its debts. The company usually remains in control as a “debtor in possession” and negotiates a repayment plan with creditors under court supervision.3Office of the Law Revision Counsel. 11 USC Ch 11 – Reorganization It is expensive and procedurally heavy, but it gives a viable business a chance to survive.
Smaller businesses with total debts at or below $7.5 million can use Subchapter V of Chapter 11, which cuts much of that cost and complexity.4Office of the Law Revision Counsel. 11 USC Ch 11 Subchapter V – Small Business Debtor Reorganization There is no creditors’ committee, the plan timeline is faster, and the owner can generally keep equity without creditor consent as long as the plan puts all projected disposable income toward repayment. For most small and mid-sized reorganizations, this is the path to look at first.
How Your Business Structure Changes the Filing
Entity type reshapes the case in ways that catch owners off guard. The biggest surprise: corporations, LLCs, and partnerships do not get a debt discharge in Chapter 7. The statute limits Chapter 7 discharges to individual debtors.5Office of the Law Revision Counsel. 11 USC 727 – Discharge The trustee still liquidates the assets and pays out the proceeds, but any remaining balances are not wiped away by court order. The entity dissolves with unpaid debts technically outstanding. Creditors cannot collect from a shell, but any personal guarantees you signed survive.
Sole proprietors face the opposite issue. No legal boundary separates you from the business, so a bankruptcy filing pulls your personal assets into the case alongside the business ones. Home, car, and bank accounts all come into play. Sole proprietors do qualify for a personal discharge, which can clear both business and personal debts, and depending on debt levels they may also qualify for Chapter 13. The trade-off is that personal property is exposed. Sole proprietors also use the individual bankruptcy forms rather than the non-individual forms below.
Corporations need board authorization before filing. A formal board resolution documenting the vote and authorizing the petition is generally required alongside the paperwork.6United States Bankruptcy Court Middle District of Florida. Corporate Authorization to File Bankruptcy Petition Partnerships follow whatever the partnership agreement specifies about major financial decisions, with state law filling in gaps. Getting this step wrong can lead to a petition being challenged and dismissed.
Records You Need Before You File
A business bankruptcy opens the books completely. The court and trustee scrutinize every detail, and incomplete records are one of the fastest ways to derail a case or draw accusations of bad faith.
Start with a creditor matrix, a formatted list of every creditor’s name and mailing address. The court uses it to send notices. The amounts owed go on the detailed schedules, not the matrix. Local bankruptcy courts publish specific formatting rules for the matrix, so check yours before preparing it.
Build a full inventory of business assets: real estate, equipment, vehicles, inventory, accounts receivable, intellectual property, and cash on hand, with a current estimated value for each. On the liability side, pull together every loan agreement, vendor invoice, lease, and outstanding judgment.
Federal tax returns for the last four tax periods must be filed and provided to the trustee.7Internal Revenue Service. Declaring Bankruptcy Any unfiled returns need to be completed before the petition goes in. Recent profit-and-loss statements, balance sheets, and bank statements showing the cash position leading up to filing will also be expected. Loop in your accountant early.
The Bankruptcy Forms for Non-Individual Debtors
Corporations, LLCs, and partnerships use a separate set of forms from individual filers. The core document is the Voluntary Petition for Non-Individuals Filing for Bankruptcy, Form 201.8United States Courts. Voluntary Petition for Non-Individuals Filing for Bankruptcy It captures the legal name, trade names, EIN, chapter being filed under, and summary estimates of total assets and liabilities.
The financial detail lives in the Official Form 206 schedules:9United States Courts. Instructions for Bankruptcy Forms for Non-Individuals
- Schedule A/B lists all real and personal property with estimated values.
- Schedule D lists secured claims, meaning debts backed by collateral.
- Schedule E/F lists unsecured claims, split between priority claims (like employee wages and taxes) and general unsecured claims (like vendor invoices).
- Schedule G lists executory contracts and unexpired leases, from office space to equipment rental.
- Schedule H lists co-debtors who share liability on the company’s obligations.
Form 207, the Statement of Financial Affairs, fills in the disclosure picture. It requires two years of gross revenue, details on payments to creditors within the 90 days before filing, and information about recent property transfers, lawsuits, and losses.10United States Courts. Official Form 207 – Statement of Financial Affairs for Non-Individuals Filing for Bankruptcy Payments to insiders draw extra scrutiny. A trustee can claw back preferential transfers to regular creditors made within 90 days of filing, and that look-back extends to a full year for insiders like officers, directors, and their relatives.11Office of the Law Revision Counsel. 11 USC 547 – Preferences Form 207 asks about these specifically, and non-disclosure is a fast way to trigger an adversary proceeding.
Filing the Petition and Paying the Fee
The completed petition and schedules go to the Clerk of the Bankruptcy Court in the district where the business is located or incorporated. Most attorneys file electronically through the Case Management/Electronic Case Files system, which timestamps and processes documents on submission.12United States Courts. Electronic Filing (CM/ECF) Paper filing by mail or hand delivery is available for those without electronic access.
Filing fees are due at submission: $338 for Chapter 7 and $1,738 for Chapter 11.1United States Courts. Bankruptcy Court Miscellaneous Fee Schedule Business entities generally cannot get fee waivers, though installment arrangements may be available in some circumstances. Attorney fees are a separate and usually much larger expense, running from a few thousand dollars for a straightforward Chapter 7 to tens of thousands for a Chapter 11.
Once the clerk accepts the petition, the court assigns a case number and an order for relief takes effect.
What the Filing Immediately Does
The petition triggers an automatic stay that stops most creditor actions against the business the moment the case opens. Lawsuits, collection calls, foreclosures, repossessions, and bank account freezes all halt.13Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay Creditors who violate the stay can be sanctioned.
The stay is not absolute. Government agencies can continue regulatory and police-power actions, so environmental enforcement, health inspections, and licensing proceedings keep going. Tax audits and deficiency notices also continue.14Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay A creditor can also ask the court to lift the stay on specific property for cause, such as inadequate protection for a secured creditor whose collateral is losing value.
Within roughly 21 to 50 days after filing, the U.S. Trustee schedules a meeting of creditors under Section 341 of the Bankruptcy Code.15Office of the Law Revision Counsel. 11 USC 341 – Meetings of Creditors and Equity Security Holders No judge attends. An authorized officer of the business must appear and answer questions under oath about the company’s assets, debts, financial condition, and the events leading to the filing. Creditors receive notice and may attend, though most do not unless they suspect hidden assets or fraud. Straightforward cases run 10 to 15 minutes. Refusing to appear or cooperate gives the trustee grounds to seek dismissal.
What Happens After Filing
Chapter 7: Liquidation Through Closure
The trustee takes over. They investigate the company’s financial affairs, collect and sell the assets, and distribute the proceeds to creditors according to the Bankruptcy Code’s priority scheme. Employees with unpaid wages have a priority claim of up to $17,150 per person, meaning they get paid before general unsecured creditors like trade vendors. Once distribution is complete, the case closes and the company is finished.
Chapter 11: Building and Confirming a Plan
The real work in Chapter 11 begins after filing. The debtor has an exclusive 120-day window to propose a reorganization plan, and an additional 60 days after that to obtain creditor acceptance. Courts can extend these periods up to 18 months for filing and 20 months for acceptance, and they can also shorten them if the debtor drags.16Office of the Law Revision Counsel. 11 USC 1121 – Who May File a Plan
The plan spells out how each class of creditors will be treated: who gets paid in full, who takes a reduction, who gets paid over time, and who gets equity in the reorganized company. Creditors vote by class. The court confirms the plan only if it meets a long list of statutory requirements, including that each dissenting creditor receives at least as much as they would in a Chapter 7 liquidation.17Office of the Law Revision Counsel. 11 USC 1129 – Confirmation of Plan
While the plan is being developed, the business files monthly operating reports with the U.S. Trustee. These reports track income, expenses, cash flow, and compliance with post-petition obligations like current taxes and insurance premiums.18United States Department of Justice. Chapter 11 Operating Reports Small business and Subchapter V debtors use a simplified reporting form. Missing these reports or falling behind on post-petition obligations is a common reason cases get converted to Chapter 7 or dismissed.
Tax Consequences of Discharged Debt
When a business debt is cancelled or reduced through bankruptcy, the IRS normally treats the forgiven amount as taxable income. A creditor who writes off $200,000 would ordinarily trigger $200,000 of income. Bankruptcy provides an exception: debt discharged in a Title 11 case is excluded from gross income entirely.19Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
There is a trade-off. The discharged amount must reduce the company’s tax attributes, including net operating loss carryovers, general business credits, capital loss carryovers, and the basis of the company’s property.20Internal Revenue Service. Instructions for Form 982 The reductions happen in a specific statutory order unless the business elects to reduce the basis of depreciable property first. This is reported on IRS Form 982, filed with the business’s tax return for the year the discharge occurs.
Businesses that are insolvent but have not filed can also exclude discharged debt, but only up to the amount by which liabilities exceed assets.21Internal Revenue Service. What if I Am Insolvent? The Title 11 bankruptcy exclusion has no such cap, which is one reason some businesses file even when an out-of-court settlement seems possible.
Alternatives Worth Weighing First
Bankruptcy is not the only route for a business that cannot pay its debts.
An assignment for the benefit of creditors is a state-law process where the business transfers its assets to an independent assignee, who liquidates and distributes them. It functions similarly to Chapter 7 but often avoids court oversight, moves faster, and costs less. The owner can typically choose the assignee, which is not possible in Chapter 7 where the court appoints the trustee. There is no automatic stay, no discharge, and less legal protection for the debtor.
Out-of-court workouts involve negotiating directly with creditors to restructure payment terms, accept reduced balances, or extend deadlines. When the creditor group is small and relationships are workable, this can resolve the situation without the expense and publicity of a filing. The risk is that a single holdout creditor can refuse to participate and sue while negotiations continue with the others.
Simple state-law dissolution is the cleanest exit when a business has few assets and manageable debts. You wind down operations, sell what you can, pay creditors to the extent possible, and file dissolution paperwork with the state. It offers no protection against creditors who want to pursue remaining balances or personal guarantees, but when there is little left to fight over, it is often enough.