To file business bankruptcy, you choose the chapter of the Bankruptcy Code that fits your goal, hire an attorney if the business is a corporation, LLC, or partnership, assemble a detailed set of financial schedules and disclosures, and submit the petition to the federal bankruptcy court in the district where the business has been located for most of the last 180 days.1Office of the Law Revision Counsel. 28 USC 1408 – Venue of Cases Under Title 11 The mechanics differ depending on whether you plan to shut down or restructure and whether the business is a separate entity or a sole proprietorship, so the first decision shapes almost everything that follows.
Pick the Chapter That Fits Your Goal
Title 11 gives businesses three practical paths.
Chapter 7 If You Are Shutting Down
Chapter 7 is the liquidation route. A court-appointed trustee sells the business’s assets and pays creditors in a set order of priority, and the business ceases to exist when the case ends. Corporations, partnerships, and sole proprietorships can all file. One point that catches owners off guard: a corporation or LLC that liquidates under Chapter 7 does not receive a discharge of its remaining debts. The entity simply dissolves with whatever obligations are left unpaid. A sole proprietor filing as an individual can receive a personal discharge of qualifying debts.
Chapter 11 If You Want to Keep Operating
Chapter 11 lets the business keep running while it restructures debt under court supervision. The business usually stays in control as a “debtor-in-possession” and proposes a plan to pay creditors over time. The debtor has an exclusive 120-day window to file a plan, extendable up to 18 months, and 180 days to obtain creditor acceptances, extendable up to 20 months.2United States Courts. Chapter 11 – Bankruptcy Basics After that exclusivity period, creditors or a trustee can file competing plans.
Small businesses with total debts at or below $3,024,725 can elect Subchapter V, a streamlined version of Chapter 11 with fewer administrative hurdles and lower costs.3U.S. Department of Justice. Subchapter V Small Business Reorganizations Only the debtor may file a plan, there is no unsecured creditors’ committee unless the court orders one, and the case moves faster. The temporary $7.5 million CARES Act threshold expired in June 2024, so the current limit is lower than many owners expect.
Chapter 13 If You Run the Business as an Individual
A sole proprietor who operates in their own name can file under Chapter 13, which allows keeping assets while following a three-to-five-year repayment plan approved by the court. Chapter 13 requires regular income and specific debt ceilings: unsecured debts below $526,700 and secured debts below $1,580,125.4United States Courts. Chapter 13 – Bankruptcy Basics The next adjustment is scheduled for April 2028. Corporations and LLCs cannot use Chapter 13 at any size.
Handle the Pre-Filing Requirements
You Need an Attorney If the Business Is an Entity
Corporations, LLCs, and partnerships cannot represent themselves in federal bankruptcy court. They must retain a licensed attorney to file and litigate the case. This is a longstanding federal rule, not a local preference. Only individuals, including sole proprietors filing in their own name, can file without counsel, though doing so in a business case is risky given the complexity.
Credit Counseling for Individual Filers
If you are filing as an individual under Chapter 7 or Chapter 13, you must complete a credit counseling session with an approved nonprofit agency within 180 days before submitting your petition.5Office of the Law Revision Counsel. 11 U.S. Code 109 – Who May Be a Debtor The agency issues a certificate that gets filed with your petition. A separate financial management course is required after filing, before the court can grant a discharge. Skip either course and no discharge issues.
Assemble the Petition and Supporting Documents
Business entities file Official Form 201, the Voluntary Petition for Non-Individuals Filing for Bankruptcy.6United States Courts. Voluntary Petition for Non-Individuals Filing for Bankruptcy Sole proprietors filing as individuals use Official Form 101 instead. The petition identifies the business, its structure, and the chapter under which you are seeking relief.
Alongside the petition, you assemble:
- Schedules of assets and liabilities: a complete inventory of everything the business owns (real estate, equipment, accounts receivable, intellectual property, bank accounts) and everything it owes, with each creditor’s name, address, and the exact amount.
- Statement of current monthly income showing what the business earns and spends on an ongoing basis.
- List of unexpired leases and executory contracts (any lease or contract the business has not fully performed).
- Mailing matrix: a formatted list of every creditor’s name and mailing address used by the court to send official notices. Courts are particular about the formatting; a matrix that does not meet specifications gets sent back.
You also file a Statement of Financial Affairs. For business entities, Official Form 207 covers payments to creditors within the prior 90 days, payments to insiders within the prior year, and property transfers within the prior two years, among other categories.7United States Courts. Official Form 207 – Statement of Financial Affairs for Non-Individuals Filing for Bankruptcy The court reviews this for preferential payments or suspicious transfers that may need to be reversed. Tax returns for the most recent two years and bank statements for at least six months typically support these disclosures.
Accuracy is a legal obligation, not just good practice. Every form is signed under penalty of perjury by an authorized representative. Omitting a creditor can leave that debt intact after the case closes. Misrepresenting assets or hiding transfers can lead to denial of the discharge or criminal charges. Cross-reference every creditor address against current billing statements before you file.
File With the Court and Pay the Fee
The petition goes to the federal bankruptcy court in the district where the business has had its principal place of business, or has been located, for the greater part of the preceding 180 days. Attorneys and larger entities submit through the court’s CM/ECF electronic filing system.8United States Courts. Electronic Filing (CM/ECF) Individuals filing pro se can deliver paper documents to the clerk’s office.
Filing fees vary by chapter:
- Chapter 7: $338
- Chapter 11: $1,738
- Chapter 12: $278
- Chapter 13: $313
These totals include the filing fee, administrative fee, and any trustee surcharge. The court may allow installment payments; failure to pay or arrange payment can result in dismissal. Once the clerk accepts your filing, the system generates a case number that identifies the proceeding for its entire duration.
The Automatic Stay Takes Effect Immediately
The moment your petition is filed, the automatic stay under 11 U.S.C. ยง 362 takes effect. Creditors must stop all collection activity: no lawsuits, no phone calls, no repossession of equipment, no foreclosure on business property.9Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Creditors who knowingly violate the stay can be held in contempt and owe damages.
The stay has limits. Criminal proceedings against the debtor continue. Government agencies can still enforce health, safety, and environmental regulations, though they generally cannot pursue money judgments. Domestic support obligations, certain tax proceedings, and actions to perfect security interests already in progress also fall outside the stay. Creditors can ask the court to lift the stay for specific assets, particularly if collateral is losing value and the debtor has no equity in it.
What Happens in the First Weeks After Filing
Chapter 11: Open Debtor-in-Possession Accounts
In a Chapter 11 case, the business must close all existing bank accounts immediately and open new ones designated as “Debtor-in-Possession” (DIP) accounts at a depository authorized by the U.S. Trustee. Every check must be imprinted with the debtor’s name, case number, and the words “Debtor-in-Possession.”10U.S. Department of Justice. Chapter 11 Guidelines for Debtors-in-Possession All receipts flow into these accounts and all disbursements come out of them. Funds beyond current operating needs should sit in an interest-bearing DIP account.
The 341 Meeting of Creditors
Within roughly 21 to 40 days after filing, the U.S. Trustee’s office schedules a Meeting of Creditors, commonly called the 341 meeting. A trustee or the U.S. Trustee presides, and the business representative answers questions under oath about the company’s finances, assets, and recent transactions. No judge is present, but the meeting is part of the official record. Creditors may attend and ask questions of their own.
Bring proof of identification and tax records for the trustee before the meeting. Be prepared to explain large financial transactions, unusual losses, or payments to insiders in the period leading up to the filing. The trustee compares your testimony against your schedules, and inconsistencies can derail the case.
Hiring Professionals Requires Court Approval
If the debtor-in-possession needs to hire attorneys, accountants, or other professionals during the case, the bankruptcy court must approve the employment, and the professional must be disinterested and hold no interest adverse to the estate.11Office of the Law Revision Counsel. 11 U.S. Code 327 – Employment of Professional Persons Fees are also subject to court review and approval.
Ongoing Costs and Reporting in Chapter 11
Filing fees are only the beginning. Chapter 11 debtors owe quarterly fees to the U.S. Trustee for the life of the case, based on total disbursements each quarter. For quarters beginning April 1, 2026 through December 31, 2030, the schedule is:
- $0 to $62,624 in disbursements: $250 (this minimum applies even if there were no disbursements)
- $62,625 to $999,999: 0.4% of quarterly disbursements
- $1,000,000 to $27,777,722: 0.9% of quarterly disbursements
- $27,777,723 or more: $250,000
Fees are due within one month after the end of each calendar quarter and must be paid electronically through the U.S. Trustee Program’s Pay.gov site.12U.S. Department of Justice. Chapter 11 Quarterly Fees In a case that runs for years, these can add up.
Chapter 11 debtors also file monthly operating reports showing income, expenses, and cash flow. Small business debtors in Subchapter V use Official Form 425C for periodic reporting before plan confirmation; after confirmation, the local U.S. Trustee’s office sets the reporting requirements.13U.S. Department of Justice. Chapter 11 Operating Reports Falling behind on these reports is one of the fastest ways to get a case converted to Chapter 7 or dismissed.
Debts That Survive the Case
Not everything is wiped out. Some debts are non-dischargeable regardless of chapter. For individual debtors, the main ones include:
- Priority tax debts: income taxes for returns due within three years of filing, taxes assessed within 240 days before filing, and trust fund taxes like payroll withholding.14Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge
- Debts obtained through fraud, misrepresentation, or embezzlement.
- Taxes where the debtor filed a fraudulent return or willfully attempted to evade the tax.
Employee claims also get special treatment. Unpaid wages, salaries, and commissions earned within 180 days before the petition receive fourth-priority status up to $17,150 per employee, and employee benefit plan contributions receive fifth-priority status with the same per-employee cap.15Office of the Law Revision Counsel. 11 USC 507 – Priorities Priority debts get paid before general unsecured creditors see anything.
Personal Guarantees Do Not Go Away
If you personally guaranteed a business loan, lease, or credit line, filing bankruptcy for the business does not eliminate your obligation under that guarantee. The guarantee is your debt, not the company’s, and a corporate Chapter 7 or Chapter 11 only addresses the entity’s liabilities. Relief from personal guarantees requires a separate individual bankruptcy, and even then some guaranteed debts may be non-dischargeable depending on the circumstances.
A Few Boundaries Worth Knowing Before You File
Tax Treatment of Discharged Debt
When a business debt is canceled outside bankruptcy, the IRS normally treats the forgiven amount as taxable income. Debt discharged in a Title 11 case is excluded from gross income, provided the debtor was under the jurisdiction of the bankruptcy court and the discharge was granted by the court or under a court-approved plan.16Internal Revenue Service. Instructions for Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness The trade-off is that the debtor must reduce certain tax attributes (net operating loss carryovers, tax credit carryovers, and basis in property) in the order set by the tax code. A large NOL that gets reduced can increase tax liability for years after the case closes, so run the numbers with a tax advisor before assuming discharge is cost-free.
The WARN Act Still Applies
Businesses with 100 or more employees generally must comply with the Worker Adjustment and Retraining Notification Act before a shutdown or mass layoff. Bankruptcy does not waive the 60-day notice requirement automatically, but two exceptions commonly apply: the “faltering company” exception when the business was actively seeking financing and reasonably believed notice would prevent it, and the “unforeseeable business circumstances” exception for sudden events outside the employer’s control.17eCFR. 20 CFR 639.9 – When May Notice Be Given Less Than 60 Days in Advance Even with an exception, the employer must give as much notice as is practicable and explain in writing why the full 60 days was not possible. WARN liability becomes a claim in the case and competes with other creditors.
Creditors Can File the Petition Instead
Filing is not always the debtor’s choice. Creditors can force a business into Chapter 7 or Chapter 11 by filing an involuntary petition. If the business has 12 or more eligible creditors, at least three must join; with fewer than 12, a single creditor can file.18Office of the Law Revision Counsel. 11 U.S. Code 303 – Involuntary Cases The claims must not be contingent or subject to bona fide dispute, and they must meet a minimum aggregate threshold that is adjusted periodically. If you are considering a voluntary filing while creditors are pressing hard, moving first keeps you in control of chapter selection and timing.