What is Chapter 11 bankruptcy?

Chapter 11 is a reorganization bankruptcy that allows businesses (and some individuals) to continue operating while restructuring their debts under a court-approved plan. The debtor typically remains in control of the business as a 'debtor in possession' and proposes a reorganization plan to creditors. If the plan is confirmed by the court, the business continues under the new terms. Chapter 11 is more complex and expensive than Chapter 7 or Chapter 13, but it allows the business to survive rather than being liquidated.

What is Subchapter V in Chapter 11?

Subchapter V is a streamlined version of Chapter 11 created by the Small Business Reorganization Act of 2019 for businesses with debts below a specified threshold (currently $7.5 million). It eliminates the requirement for a creditors' committee, appoints a trustee to facilitate rather than replace management, and allows the debtor to confirm a plan without creditor approval through a cramdown provision. Subchapter V cases are faster and less expensive than traditional Chapter 11.

Can individuals file Chapter 11?

Yes. While Chapter 11 is primarily used by businesses, individuals can file Chapter 11 if they exceed the debt limits for Chapter 13. There is no debt limit for Chapter 11. Individual Chapter 11 cases are less common because they are more expensive and complex, but they provide reorganization relief to high-debt individuals who do not qualify for Chapter 13.

Chapter 11 Bankruptcy Explained: Business Reorganization

Chapter 11 lets businesses restructure debts while continuing to operate. A streamlined version called Subchapter V makes this accessible to small businesses.

What Chapter 11 is

Chapter 11 is a reorganization bankruptcy governed by 11 U.S.C. Chapter 11. It allows a business -- or, in some cases, an individual -- to continue operating while restructuring debts under court supervision. The debtor proposes a reorganization plan that specifies how each class of creditors will be treated. If the court confirms the plan, the debtor pays according to its terms and emerges from bankruptcy as a going concern.

Unlike Chapter 7, which liquidates the business, Chapter 11 is designed to preserve it. The debtor usually stays in control as a "debtor in possession" and continues running day-to-day operations during the case.

Who files Chapter 11

Chapter 11 is available to businesses of any size, from sole proprietorships to publicly traded corporations. Individuals who exceed the debt limits for Chapter 13 can also file Chapter 11. There is no debt ceiling.

Common Chapter 11 filers include:

Small businesses that need to restructure leases, contracts, or secured debt
Corporations reorganizing under financial distress
Individuals with debts above the Chapter 13 limits

How it works

The debtor files a petition and typically retains control of the business as debtor in possession. The process involves several key phases:

Automatic stay. Upon filing, creditors must stop all collection activity, lawsuits, and foreclosures.
Operating the business. The debtor continues operations, pays employees, and serves customers. Major decisions (selling assets, taking on new debt) require court approval.
Proposing a plan. The debtor proposes a reorganization plan that classifies creditors and specifies what each class will receive.
Creditor voting. Impaired creditors vote on the plan. A class accepts if a majority in number holding two-thirds in amount vote yes.
Confirmation. The court confirms the plan if it meets statutory requirements. If not all classes accept, the court may confirm over objections through "cramdown" under Section 1129(b).

Subchapter V: small business fast track

The Small Business Reorganization Act of 2019 added Subchapter V to Chapter 11, creating a streamlined process for small business debtors with total debts below a specified threshold (currently $7.5 million as extended).

Key Subchapter V differences

No creditors' committee -- reduces cost and complexity. Trustee facilitates, does not replace management -- the debtor stays in control. No absolute priority rule -- equity holders can retain interests even if unsecured creditors are not paid in full, provided the plan is fair and equitable. Faster confirmation -- the debtor has 90 days to file a plan. Cramdown without creditor acceptance -- the debtor can confirm a plan under Section 1191(b) even if no creditor class votes to accept.

Subchapter V has made Chapter 11 viable for small businesses that previously could not afford the cost or complexity of traditional Chapter 11.

Chapter 11 vs. other chapters

	Chapter 11	Chapter 7	Chapter 13
Purpose	Reorganize and continue	Liquidate and close	Repayment plan
Who can file	Businesses and individuals	Businesses and individuals	Individuals only
Debt limits	None	None	$2.75M combined
Cost	Higher (attorney fees, trustee fees)	Lower	Moderate
Business continues	Yes	No (entity dissolved)	N/A (individuals)

Individual filers

If you are an individual considering Chapter 11, it is typically because your debts exceed the Chapter 13 limits. Individual Chapter 11 cases work similarly to Chapter 13 but with more procedural requirements and higher costs. Consult a bankruptcy attorney to determine whether Chapter 11 or Chapter 13 is appropriate for your situation.

Related resources

Chapter 7 Explained -- Liquidation and fresh start
Chapter 13 Explained -- Repayment plan for individuals
Chapter 12 Explained -- Family farmer and fisherman reorganization
Compare All Discharge Bars -- Timing rules for repeat filings
Glossary -- Bankruptcy terms in plain English

Legal references

11 U.S.C. Chapter 11 -- Reorganization
11 U.S.C. Section 1129 -- Confirmation of plan
11 U.S.C. Section 1191 -- Confirmation in Subchapter V cases
11 U.S.C. Section 1181 -- Subchapter V definitions
Chapter 11 Bankruptcy Basics -- U.S. Courts

Related chapters

Chapter 7 Chapter 13 Chapter 11 Chapter 12

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