Understanding Chapter 11 Bankruptcy for Small Businesses and Individuals
When many people hear “Chapter 11,” they think of large corporations reorganizing massive debt. However, Chapter 11 is also a viable path for small businesses, sole proprietors, and individuals who need a structured way to reorganize finances while continuing operations. Although it is more complex and costly than other bankruptcy chapters, it can be a powerful tool when liquidation or a standard repayment plan is not feasible.
Why Choose Chapter 11 Bankruptcy?
Chapter 11 is fundamentally about reorganization, not liquidation. The debtor typically retains control of the business and assets—operating as a debtor in possession—and proposes a plan to restructure debt over time.
Small businesses or individuals often consider Chapter 11 when:
- They need to continue operating rather than shutting down.
- Their debt exceeds Chapter 13 limits.
- Their finances are too complex for Chapter 13.
- Business and personal finances are intertwined.
- They need to modify secured debt in ways not available in Chapter 7 or Chapter 13.
- They require a customized repayment structure.
Chapter 11 provides essential breathing room: it stabilizes operations and stops creditor pressure.
How Chapter 11 Works for Small Businesses
Small business owners—such as restaurants, contractors, retail shops, and clinics—turn to Chapter 11 when the business is viable but burdened by debt, rent, taxes, lawsuits, or lease disputes.
Key Features of Small Business Chapter 11
Debtor in Possession
Management stays in control and continues running the business, subject to oversight.
Ability to Restructure Obligations
Chapter 11 can restructure:
- Leases
- Secured loans
- Vendor debt
- Tax liabilities
- Personal guarantees
Automatic Stay
Immediately upon filing, Chapter 11 stops:
- Collections
- Lawsuits
- Foreclosures
- Garnishments
Chapter 11 for Individuals
Individuals file Chapter 11 when debt exceeds Chapter 13 limits or when finances are too complex for other chapters.
Common types of individual filers include:
- Real estate investors with multiple properties
- Business owners with personal guarantees
- Professionals with significant tax obligations
- High-income individuals needing a customized structure
Chapter 11 offers flexibility in restructuring secured loans, managing investment properties, and resolving business-related debt.
Important Considerations
While streamlined procedures exist for certain small debtors, Chapter 11 still includes:
- Strict deadlines
- Court oversight
- Extensive reporting requirements
It is not a quick or simple process—but it is a strategic tool for reorganizing and rebuilding.
The Chapter 11 Process
- Filing the petition
- Operating as a debtor in possession
- Preparing required disclosures
- Developing a reorganization plan
- Negotiating with creditors
- Court confirmation of the plan
- Implementing the confirmed plan
Common Situations Where Chapter 11 Helps
Chapter 11 is often beneficial for:
- Restaurants or retail businesses with overdue rent
- Contractors facing judgments but maintaining active contracts
- Medical practices struggling with equipment loans
- Landlords needing to restructure property debt
- Individuals with business guarantees or complex financial obligations
Experience You Can Trust
For more than 30 years, I have represented individuals, small businesses, investors, and consumers in Chapter 11 and consumer bankruptcy cases. I understand the stress, uncertainty, and financial pressure that clients face when considering bankruptcy, and I take pride in offering practical, compassionate, and strategic guidance tailored to each situation.
Whether you are a business owner trying to save your company, an individual with complex finances, or someone simply looking for a path forward, you do not have to navigate these challenges alone.
Call Me With Your Questions
If you are considering Chapter 11 or want to better understand your options, I encourage you to call me directly. I am always happy to speak with prospective clients, answer your questions, and explain how these laws may apply to your situation. There is no substitute for personal guidance from an attorney who has handled Chapter 11 cases for decades.
Contact Rosenblatt Law anytime to schedule a consultation and take the next step toward financial stability and a fresh start.