Chapter 11 bankruptcy is a court-supervised reorganization under Title 11 of the U.S. Code that lets a financially distressed business keep operating while it restructures its debts under a plan approved by the bankruptcy court. Instead of shutting down and selling off assets the way a Chapter 7 liquidation does, a Chapter 11 debtor proposes to repay creditors over time, renegotiate contracts and leases, and emerge as a going concern. It is available to companies of nearly any size and, in some circumstances, to individuals.
Who Files Chapter 11
Eligibility is broad. Any person or entity that qualifies as a Chapter 7 debtor can file under Chapter 11, with narrow exceptions for stockbrokers and commodity brokers. Railroads and certain banking organizations also qualify.1Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor In practice, that covers corporations, partnerships, LLCs, and individuals. Municipalities use Chapter 9 instead, and most government entities are excluded.
Businesses default to Chapter 11 when they need room to restructure rather than close. Individuals sometimes file too, usually when their debts exceed the ceilings for Chapter 13. Chapter 11 has no such debt limits.
A case starts when the debtor files a voluntary petition in the bankruptcy court for the district where the business is headquartered or has its principal assets. The petition must include schedules of assets and liabilities, current income and expenses, executory contracts and unexpired leases, and a statement of financial affairs.2United States Courts. Chapter 11 – Bankruptcy Basics Creditors can also force a company into Chapter 11 through an involuntary petition if statutory requirements are met.
What Filing Immediately Does
The moment the petition is filed, the automatic stay takes effect. It stops lawsuits, collection calls, foreclosures, repossessions, and enforcement of judgments against the debtor or its property, and it blocks creditors from creating or enforcing liens on estate property.3Office of the Law Revision Counsel. 11 U.S. Code 362 – Automatic Stay The point is to give the debtor time to assess its position and put a plan together without individual creditors racing to grab assets. A creditor can ask the court to lift the stay for specific reasons, such as when the debtor has no equity in a piece of property and the property isn’t needed to reorganize, but until the court grants relief the stay holds.
Existing management usually stays in charge. The company becomes a “debtor-in-possession,” keeping control of its assets and running the business while it reorganizes. The debtor-in-possession takes on the fiduciary duties of a trustee, protecting estate assets for the benefit of creditors and equity holders.4Office of the Law Revision Counsel. 11 U.S. Code 1107 – Rights, Powers, and Duties of Debtor in Possession
The court only displaces existing leadership in a small fraction of cases. Grounds include fraud, dishonesty, incompetence, or gross mismanagement either before or after the filing, and the court can also appoint a trustee when doing so serves the interests of creditors and equity holders.5Office of the Law Revision Counsel. 11 USC 1104 – Appointment of Trustee or Examiner Short of appointing a trustee, the court may appoint an examiner to investigate specific issues.
Soon after filing, the U.S. Trustee appoints an official committee of unsecured creditors, usually the seven largest unsecured claimholders willing to serve. The committee investigates the debtor’s finances, negotiates plan terms, and can object to actions it considers harmful to unsecured creditors, with its own professionals paid from the estate.6GovInfo. 11 U.S. Code 1102 – Creditors’ and Equity Security Holders’ Committees
The Plan of Reorganization
The plan is the centerpiece of the case. It spells out which debts will be paid and how much, what happens to the company’s assets, and how the business will be structured going forward. It might call for selling a division, renegotiating leases, converting some debt to equity, or stretching repayment over several years.
The debtor gets an initial 120-day exclusive period to propose the plan. During that window, no one else can file a competing plan. The court can extend or shorten the period for good cause, but exclusivity cannot be stretched beyond 18 months after the order for relief.7Office of the Law Revision Counsel. 11 U.S. Code 1121 – Who May File a Plan If exclusivity expires without a confirmed plan, creditors and other parties can file competing proposals.
Before creditors vote, the court must approve a disclosure statement giving them “adequate information” about the debtor’s history, financial condition, and the plan’s consequences, enough that a typical creditor in each class can evaluate the proposal.8Office of the Law Revision Counsel. 11 USC 1125 – Postpetition Disclosure and Solicitation No one can solicit votes until this statement has been approved and distributed.
Voting and Confirmation
Claims are grouped into classes based on legal priority and treatment under the plan, and creditors vote by class. A class accepts when creditors holding more than half the claims by number, and at least two-thirds by dollar amount, vote in favor.9Office of the Law Revision Counsel. 11 U.S. Code 1126 – Acceptance of Plan Unimpaired classes, meaning those whose rights the plan leaves intact, are presumed to accept and don’t vote.
Even with creditor approval, the court must independently confirm that the plan meets the statutory requirements. The most significant is the best interests of creditors test: every dissenting creditor must receive at least as much value under the plan as they would have received if the company had been liquidated under Chapter 7.10Office of the Law Revision Counsel. 11 U.S. Code 1129 – Confirmation of Plan
Cramdown and the Absolute Priority Rule
When one or more impaired classes rejects the plan, the debtor can still seek confirmation through cramdown. The court may confirm over an objecting class as long as at least one impaired class of creditors has voted to accept, the plan does not discriminate unfairly against the dissenting class, and the plan is “fair and equitable” to the holdouts.10Office of the Law Revision Counsel. 11 U.S. Code 1129 – Confirmation of Plan
For unsecured creditors, “fair and equitable” triggers the absolute priority rule. No class ranking below the dissenting class can receive anything under the plan unless the dissenting class is paid in full. In practice, the company’s owners cannot keep their equity unless every creditor above them in priority has been made whole. The recognized exception is the “new value” doctrine: owners may retain an interest if they contribute substantial new capital reasonably equivalent to the value of what they’re keeping.
What Confirmation Does
Once the court confirms the plan, the debtor begins making payments and carrying out its terms. For a business entity, confirmation itself typically discharges all pre-confirmation debts, whether or not the creditor filed a proof of claim and whether or not the creditor voted to accept.11GovInfo. 11 U.S. Code 1141 – Effect of Confirmation The discharge replaces those old obligations with whatever the plan provides.
There are exceptions. If the plan calls for liquidating all or substantially all of the company’s assets and the company will not continue operating, a corporate debtor does not receive a discharge. That rule keeps empty corporate shells from walking away clean. Individual debtors face a different timeline: their discharge is generally delayed until all plan payments are complete, and debts that are nondischargeable in Chapter 7, such as student loans and most tax debts, remain nondischargeable in Chapter 11.11GovInfo. 11 U.S. Code 1141 – Effect of Confirmation
When Reorganization Doesn’t Work
Not every case ends with a confirmed plan. If the debtor cannot put a workable plan together, the case is either converted to Chapter 7 liquidation or dismissed entirely, whichever the court finds better serves creditors. The debtor can voluntarily convert at almost any time, and creditors or the U.S. Trustee can ask the court to force conversion or dismissal for cause.12Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal
Cause is defined broadly. It includes continuing financial losses with no realistic prospect of rehabilitation, gross mismanagement of the estate, unauthorized use of cash collateral, failure to maintain insurance, and repeated failures to meet court-ordered deadlines or filing requirements.12Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal A debtor that cannot show progress toward a viable plan will eventually lose the court’s patience.
Subchapter V for Small Businesses
Congress added Subchapter V to Chapter 11 in 2019 to give small businesses a faster, cheaper reorganization track. As of 2026, a business qualifies if its total noncontingent, liquidated debts, excluding debts owed to insiders or affiliates, do not exceed $3,424,000. Publicly traded companies are excluded regardless of debt level.
Subchapter V removes several of the most expensive features of a standard Chapter 11 case. There is no creditors’ committee unless the court specifically orders one. The U.S. Trustee does not collect quarterly fees from Subchapter V debtors.13United States Department of Justice. Chapter 11 Quarterly Fees And the absolute priority rule does not apply, which removes one of the biggest obstacles small business owners face in getting a plan confirmed.
In place of a creditors’ committee, the court appoints a Subchapter V trustee whose role is closer to a mediator. The trustee reviews the debtor’s finances, helps negotiate a plan, and monitors payments after confirmation. The debtor stays in possession and runs the business throughout.
If all impaired classes accept, confirmation works the same as in a standard case. If any class rejects, the debtor can still confirm without creditor consent as long as the plan commits all of the debtor’s projected disposable income over a three-to-five-year period to plan payments and is otherwise fair and equitable.14Office of the Law Revision Counsel. 11 USC 1191 – Confirmation of Plan The trade-off is that the debtor’s discharge is delayed until plan payments are complete, rather than granted at confirmation.
What Chapter 11 Costs
Chapter 11 is expensive, and the costs go well beyond the filing fee. The federal filing fee for a Chapter 11 petition is $1,167 under the statute, with an administrative fee bringing the total to $1,738.15Office of the Law Revision Counsel. 28 USC 1930 – Bankruptcy Fees That is just the entry ticket.
The real expense is professional fees. Attorneys, financial advisors, and any professionals hired by the creditors’ committee are all paid from the estate, but only after court approval. The court reviews every fee application and will authorize compensation only for services that were actual, necessary, and beneficial to the estate.16Office of the Law Revision Counsel. 11 U.S. Code 330 – Compensation of Officers Even so, professional fees in a mid-sized case routinely run into six or seven figures, and total administrative costs in large corporate cases can reach tens of millions.
Chapter 11 debtors outside Subchapter V also pay quarterly fees to the U.S. Trustee for as long as the case stays open. Effective April 1, 2026, those fees are calculated as a percentage of quarterly disbursements, ranging from a $250 minimum for disbursements under $62,625 to a cap of $250,000 for disbursements above roughly $27.8 million.13United States Department of Justice. Chapter 11 Quarterly Fees For a company disbursing between $1 million and $27.8 million per quarter, the fee is 0.9% of disbursements. Those obligations accumulate from the filing date until the case is closed, converted, or dismissed.