What is a Chapter 11 bankruptcy?
Repay debt without shutting down your business
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Some business owners and individuals with large amounts of debt turn to Chapter 11 bankruptcy to restructure what they owe and keep things running. Chapter 11 bankruptcy is a legal process that allows businesses and individuals to reorganize their debts while continuing operations.
This type of bankruptcy, often referred to as reorganization bankruptcy or Chapter 11, is primarily used by corporations, partnerships and individuals with substantial debts. The goal of Chapter 11 is to develop a plan to repay creditors over time, allowing the debtor to regain financial stability.
Chapter 11 bankruptcy lets businesses and individuals reorganize debt while continuing operations.
Jump to insightIndividuals can file Chapter 11 if their debts are too high to qualify for Chapter 13.
Jump to insightThe court must confirm your repayment plan before it takes effect.
Jump to insightChapter 11 is often better for businesses or individuals with complex finances or too much debt for Chapter 13.
Jump to insightChapter 7 is best for low-income filers with few assets, while Chapter 13 is a simpler alternative for those under the debt limits.
Jump to insightChapter 11 bankruptcy basics
Chapter 11 is basically a bankruptcy plan that allows businesses to restructure debts and stay open. In this type of bankruptcy, the debtor retains ownership of their assets, and the repayment plan uses future income to pay off the debts.
Jim Pendergast, general manager of altLINE, a division of The Southern Bank Company, told us: "Chapter 11 is suitable for businesses that want to maintain good standing with their creditors while they restructure and attempt to salvage their financial situation. Filing for Chapter 11 also allows businesses to maintain control of their assets during this time.”
There are no limits on how much debt can be included in a Chapter 11 filing. Debtors can file voluntarily or be forced to file by their creditors. You may not file for bankruptcy of any kind if, within the last 180 days, you have received credit counseling or failed to follow court orders that caused previous bankruptcy orders to be dismissed.
Filing for bankruptcy forces creditors to stop attempting to collect the debt. The creditors listed in the filing will have an opportunity to object or agree to the plan. The court will oversee the process and approve or deny the debt repayment plan. The court can also convert the filing to a different bankruptcy chapter, if needed.
The court may require you to use all of your disposable income to fund the repayment plan, which can last up to five years. If the court determines the plan isn't feasible — that is, your debt won’t be paid off within five years — it might suggest revisions or consider converting your case to another type of bankruptcy.
Chapter 11 differs from Chapter 7 and Chapter 13 in several ways.
Comparing Chapters 11, 7 and 13
| Chapter 11 | Chapter 7 | Chapter 13 | |
|---|---|---|---|
| Main purpose | Reorganization | Liquidation | Creating repayment plan |
| Who can file | Businesses and individuals | Businesses and individuals | Individuals |
| Debt limits | None | None | $1,580,125 for secured debts and $526,700 for unsecured debts |
| Control of assets | Debtor stays in control of assets | Assets are sold or seized | Debtor stays in control of assets |
| Impact on credit | Stays on credit report for 10 years | Stays on credit report for 10 years | Stays on credit report for seven years |
How Chapter 11 bankruptcy works
Chapter 11 bankruptcy works by giving debtors time to reorganize their finances under court supervision while continuing to operate. The Chapter 11 process begins when you submit a petition to the bankruptcy court in your area. Your filing must include:
- Your name
- Social Security number
- Address
- Location of assets (if filing as a business)
- All debts you want included in the filing
- A proposed repayment plan or a statement of intent to file one
- A copy of any debt management plan you’re on
- Proof of income received within 60 days before the filing
- A statement of monthly income
- A record of any government student loans
You'll also be required to pay a $1,167 case filing fee and a $571 administrative fee to the courts. There’s also an ongoing quarterly management fee paid to the courts, which will be between $250 and $10,000 per quarter.
Management fees ranging from $250 to $10,000 must be paid quarterly.
You'll have 120 days to file a plan of reorganization that explains how you intend to repay the debts. The plan breaks creditors into classes and identifies which, if any, won’t be repaid in full. These classes are typically:
- Secured creditors
- Priority unsecured creditors
- General unsecured creditors
- Equity security holders
If there are any classes of creditors that aren’t being paid in full, those creditors can vote on the proposed plan. The courts must confirm the plan in order for it to take effect, which it can do even if creditors don’t vote to accept the proposed plan. To confirm the plan, the court must feel the payment plan is feasible and in the best interest of the creditors.
If the court doesn’t confirm the plan, it can dismiss it or convert it into a Chapter 7 bankruptcy.
Pros and cons of Chapter 11 bankruptcy
Some of the pros and cons of Chapter 11 bankruptcy are:
Pros
- No debt limits
- Retention of assets
- Continued operation for businesses
- Collections stop
- Higher repayment rates than Chapter 7
Cons
- High costs
- Complex repayment plans
- Doesn’t protect joint account holders or cosigners
- Remains on credit report for 10 years
In general, Chapter 11 is best suited for businesses with a plan to repay debt over time while continuing to operate.
Chapter 11 for individuals vs. businesses
The biggest difference between Chapter 11 for individuals and businesses is how the repayment plan is built. Businesses often rely on restructuring operations, selling off assets or seeking new financing to stay afloat. Individuals may also sell assets, but their plans more commonly resemble Chapter 13 — using personal income to make monthly payments while keeping their property.
Here’s a quick comparison of how Chapter 11 works for each:
Filing Chapter 11: Individual vs. business
| Businesses | Individuals | |
|---|---|---|
| Purpose | To restructure a business and stay operational while repaying creditors | To restructure personal debt when Chapter 7 or 13 isn't an option |
| How the plan is funded | Revenue from business operations | Personal income |
| Feasibility of the plan | Business’s ability to continue operating and generate income | Individual’s ability to repay debts with projected future income |
| Plan structure | Selling assets, restructuring operations or seeking financing | A repayment plan similar to Chapter 13 |
Alternatives to Chapter 11 bankruptcy
The alternative to Chapter 11 bankruptcy for businesses is Chapter 7. For individuals, alternatives are either Chapter 7 or Chapter 13.
Chapter 7
Chapter 7 is typically used when you can’t afford to repay your debts and are willing to give up nonessential assets. In this type of bankruptcy, the court appoints a trustee to sell your property and use the proceeds to pay creditors. Any remaining eligible debts are then discharged. This option may be suitable if you have limited income and few assets you're trying to protect.
Chapter 7 remains on your credit report for 10 years.
Ben Michael, an attorney at Michael & Associates in Austin, Texas, said: "Chapter 7 bankruptcies are the most common type for individuals. They involve selling off one's assets in order to pay off as much debt as possible before clearing the rest.
"Since Chapter 7 involves selling one's assets, you are more likely to have to give up various things you own. The priority starts with secured debts and then goes to unsecured debts. This tends to be the best option for lower-income individuals or those with the most severe financial debt to take care of."
Chapter 13
Chapter 13 is for individuals only and is similar to Chapter 11. Filers are allowed to keep their property but must submit a plan to the courts regarding how they intend to pay off the debts. There’s no minimum amount of debt to qualify, but you can’t file if you have more than $1,580,125 for secured debts and $526,700 for unsecured debts. Chapter 13 stays on your credit report for seven years.
» LEARN: What is debt settlement?
FAQ
What happens in a Chapter 11 bankruptcy?
In a Chapter 11 bankruptcy, you'll file a plan to repay your debts with the court and submit documentation that shows the plan is feasible. Any creditors who won’t be repaid in full are allowed to vote on the plan. The courts will review the plan and either confirm it, dismiss it or convert it into a different type of bankruptcy.
Which is better, Chapter 11 or Chapter 13?
Chapter 13 is usually better for individuals because it’s simpler, less expensive and designed specifically for personal debt restructuring. But it only works if your debt is below the Chapter 13 limits.
If your debt is too high or your financial situation is more complex, Chapter 11 might be a better option, although it costs more and takes longer to complete. Businesses can’t file for Chapter 13, so Chapter 11 is the only reorganization option.
Does Chapter 11 wipe out all debt?
No, Chapter 11 doesn't wipe out all debt. Instead, it restructures the debt and allows filers to keep control of their assets while they complete the new payment plan.
Can a small business file for Chapter 11?
Yes, a small business can file for Chapter 11 bankruptcy.
Is Chapter 11 bankruptcy a good idea?
Chapter 11 is a good idea if your business is generating money but needs time to repay debts while staying operational. It works best for companies that want to avoid liquidation and have a realistic plan to regain financial stability. For individuals, Chapter 11 is typically only a good fit if their debt exceeds the limits for Chapter 13 and they have steady income to support a long-term repayment plan.
It might not be a good idea to file for Chapter 11 if you can’t afford the high filing and legal costs or if your income isn’t enough to support a repayment plan. If that situation describes you or your business, you might want to consider other alternatives, like Chapter 7 for debt discharge or Chapter 13.
» MORE: Should I file for bankruptcy?
Article Sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Citizens Bank, “Understanding a HELOC: draw vs repayment period.” Accessed April 16, 2025.
- U.S. Courts, “Chapter 11 Bankruptcy Basics.” May 18, 2025.
- Nolo, “What Are Chapter 13 Bankruptcy Debt Limitations?” May 18, 2025.
- Kerman and Dunn, “Is There a Debt Limit for Chapter 11 Bankruptcy?” May 18, 2025.
- Chugh, “Frequently Asked Questions: Chapter 11 Bankruptcy and Subchapter V of Chapter 11.” May 18, 2025.
- The Bankruptcy Site, “What Is a Plan of Reorganization in Chapter 11 Bankruptcy?” May 18, 2025.
- IRS, “Chapter 11 Bankruptcy Organization.” May 18, 2025.
- Debt.org, “Chapter 7 Bankruptcy.” May 18, 2025.
- The Bankruptcy Site, “Chapter 11 Bankruptcy vs Chapter 13 Bankruptcy.” May 18, 2025.
- Debt.org, “Chapter 7 Bankruptcy.” May 18, 2025.
- Capital One, “How long does bankruptcy stay on your credit reports?” May 18, 2025.
- FICO, “Different Bankruptcy Types and Their Impact on Your Credit Score.” May 18, 2025.
