How Does Chapter 11 Bankruptcy for Businesses Work?

 Posted on June 05, 2025 in Chapter 11 Bankruptcy

When businesses face financial headwinds, filing for bankruptcy can be a way to grapple with overwhelming debt and declining profits. Federal bankruptcy law offers a number of paths for businesses to file for bankruptcy. In Chapter 7 bankruptcy for small businesses, the business is sold and its assets liquidated, for instance.

But not all bankruptcy chapters spell the end of a business venture. Chapter 11 – known as the reorganization bankruptcy – gives businesses a chance to file for bankruptcy while continuing operations. This can provide organizations with an opportunity to get a new lease on life following Chapter 11. 

Although Chapter 11 can be expensive and may not be the best fit for small businesses or sole proprietorships, who might benefit more from Chapter 11 Subchapter V or Chapter 13, respectively, it does have significant benefits. An experienced Montgomery County, TX Chapter 11 bankruptcy attorney can advise your organization on the benefits of reorganizing.

How Does Chapter 11 Bankruptcy Work?

Chapter 11 allows businesses to make a plan to restructure their company in order to continue operating and remain in business by lowering their debt burden. The goal of Chapter 11 is to restructure the company’s financials to provide it with an opportunity to succeed. 

After a business files a Chapter 11 bankruptcy petition, it becomes the "debtor in possession." The company proposes a reorganization plan, which the court must approve. Confirmation of the plan discharges most debt accrued before the date of the plan confirmation. The business will make payments on this plan, which usually puts in place new contracts with creditors. Although the company can continue operating, it cannot make certain decisions without court approval. 

How Does Chapter 11 Benefit Businesses?

Organizations that file for Chapter 11 can continue operating not only following bankruptcy but also during the process. Even with court oversight, this is a significant boon for businesses that perhaps made questionable judgment calls that led to declining profitability or whose industry was heavily impacted by a recession. By continuing to operate, the business keeps its customer base and goodwill, and can emerge on the other side leaner and more viable. 

Additionally, companies who file for Chapter 11 receive emergency relief to continue operations so they can pay employees, file taxes, and meet daily contractual obligations such as paying the lease. Chapter 11 also provides businesses the opportunity to receive debtor-in-possession financing at a discounted rate to help pay for everyday expenses.

Call a Montgomery County, TX Chapter 11 Bankruptcy Attorney

If your business is struggling under significant debt or unable to make payroll, it may be time to consider your options under the bankruptcy code. The experienced Waller County, TX Chapter 11 bankruptcy attorney at The Fealy Law Firm, PC can help your organization navigate the bankruptcy process. Call us at 713-526-5220 for a complimentary consultation.