Chapter 11 bankruptcy
Also known as: Chapter 11 · Business reorganization · Debtor in possession · Subchapter V
The US Bankruptcy Code procedure in which a business keeps operating while it restructures its debts under a court-confirmed plan, protected from creditors by the automatic stay.
Legal basis
U.S. Courts, Chapter 11 – Bankruptcy Basics
Chapter 11 is reorganization, not liquidation. On filing, the company usually becomes a debtor in possession: it keeps control of its assets and runs the business, with the powers and duties of a trustee. The automatic stay (11 U.S.C. §362) suspends judgments, collection, foreclosures and repossessions on pre-petition debts, and the debtor has an initial 120-day exclusive period to propose a plan, extendable up to 18 months.
Small businesses can use Subchapter V, created in 2019, a faster and cheaper track for debtors under a debt ceiling currently set at $3,424,000. Larger cases take longer, and the plan must win creditor votes and meet the confirmation standards of §1129 before it binds anyone.
For a creditor, landlord or rental fleet, the filing is the late signal. The deterioration shows earlier — slower payments, shrinking operations, new related companies, assets moving between affiliates. Mapping the company's group and monitoring it continuously is what turns a Chapter 11 notice from a surprise into a scenario already priced.
Frequently asked questions
What is the difference between Chapter 7 and Chapter 11?
Chapter 7 is liquidation: a trustee sells the debtor's assets and distributes the proceeds to creditors. Chapter 11 is reorganization: the business usually keeps operating as debtor in possession and pays creditors under a plan confirmed by the court.
Can a lender repossess collateral during Chapter 11?
Not without the court's permission. The automatic stay suspends repossessions and other collection on pre-petition debts; a secured creditor must ask the bankruptcy court for relief from the stay.