Chapter 11 Bankruptcy

Chapter 11 is a versatile form of bankruptcy relief available to both individuals and business entities. It serves as a reorganization tool that allows debtors to restructure financial obligations while maintaining control of their assets and operations. Chapter 11 can address a wide range of financial challenges—from preventing foreclosure to renegotiating debt—and is often used by individuals or companies with complex financial structures or large debt loads.

What Chapter 11 Can Accomplish

A Chapter 11 filing can offer meaningful relief and restructuring options, including the ability to:

• Stop foreclosure and cure mortgage or property tax arrears over time
• Prevent eviction in certain circumstances
• Restructure secured debts, including real estate and vehicle loans
• Assume or reject leases and executory contracts
• Reduce or eliminate unsecured debt through plan confirmation
• Address significant personal, tax, or business-related financial obligations

Who Is Eligible for Chapter 11?

Traditional Chapter 11 cases have no income limits or debt ceilings. Any individual or business—large or small—may seek Chapter 11 protection regardless of debt size.

Debtor-in-Possession Authority

In most Chapter 11 cases:

• The debtor remains in possession of all assets and continues operating as the “debtor in possession.”
• A trustee is not automatically appointed.
• There is no co-debtor stay protecting third parties.
• The debtor may use, sell, or lease property with Bankruptcy Court approval for major transactions.

The Chapter 11 Plan Process

The debtor has an initial 120-day exclusive period to file a plan. There is no absolute deadline requiring a plan to be filed.

To obtain confirmation, a Chapter 11 plan must:

• Have at least one impaired class vote in favor of the plan
• Be proposed in good faith
• Be feasible (the debtor must be able to perform the plan)
• Avoid unfair discrimination among creditors
• Pay priority claims in full over the plan term
• Satisfy the Best Interest of Creditors Test (unsecured creditors must receive at least as much as in Chapter 7)
• Satisfy the Disposable Income / Best Efforts Test
• Comply with the Absolute Priority Rule (equity cannot retain interests unless unsecured creditors are paid in full)

Note: There is a split of authority on whether the Absolute Priority Rule applies to individual debtors. The Third Circuit has not issued binding precedent.

Business debtors generally receive a discharge at confirmation. Individual debtors typically receive a discharge only after completing plan payments.

Special Types of Chapter 11 Debtors

Single Asset Real Estate Debtors (SARE)

A debtor qualifies as a SARE debtor when:

• The business involves a single income-producing real property (excluding certain residential properties), and
• Substantially all income is generated from that property.

A creditor may obtain stay relief unless, within 90 days, the debtor:

• Files a feasible plan, or
• Begins making interest payments at the non-default contract rate

Small Business Debtors

A debtor qualifies as a small business debtor when:

• The debtor is engaged in business or commercial activities (not including SARE)
• Has liquidated debts of no more than $2,725,625
• At least 50% of its debts arise from business activities
• Has not elected Subchapter V

Deadlines for Small Business Debtors:

• 180 days of exclusive plan-filing authority
• Plan must be filed within 300 days of the petition date

Subchapter V Debtors

Subchapter V was created by the Small Business Reorganization Act to streamline Chapter 11 for small businesses and certain qualifying individuals.

To qualify for subchapter V, a debtor must:

• Elect Subchapter V
• Be engaged in commercial or business activities (not SARE)
• Have non-contingent liquidated debts under $3,024,725 with at least 50% arising from business activity

Features of Subchapter V:

• Debtor retains possession of assets
• A Subchapter V trustee is appointed to assist with plan development and confirmation
• No quarterly U.S. Trustee fees
• No automatic creditors’ committee
• The Absolute Priority Rule does not apply
• Plans may be confirmed without creditor approval

Procedural Requirements for Subchapter V:

• Status conference within 60 days
• Status report due 14 days prior
• Plan must be filed within 90 days
• Debtor retains exclusive plan-filing authority

Discharge in Subchapter V:

• Consensual plan: discharge upon confirmation
• Nonconsensual plan: discharge after plan payments are completed

If you are evaluating Chapter 11 or need guidance in an existing case, call Bankruptcy Attorney Co. today to discuss your options.