Chapter 11 Bankruptcy in New York

Chapter 11 of the Bankruptcy Code is the reorganization chapter. Unlike Chapter 7, which liquidates the debtor, Chapter 11 keeps the business running while it restructures debt, rejects unprofitable contracts and leases, and negotiates a plan of reorganization with its creditors. We represent small and mid-sized New York businesses through traditional Chapter 11 and the streamlined Subchapter V process, and we file Chapter 11 for individual debtors whose debts exceed the Chapter 13 limits.

Subchapter V — Small Business Reorganization

Subchapter V is a 2019 amendment that made Chapter 11 actually workable for small businesses. The mechanics that matter:

• Debt cap. Available to businesses whose total debt falls below the Subchapter V ceiling (the cap has fluctuated; we will tell you whether you qualify under the current number).
• No creditors' committee by default. One of the cost drivers of traditional Chapter 11 is the unsecured creditors' committee. Subchapter V dispenses with it.
• No competing plans. Only the debtor can file a plan, eliminating the cost and uncertainty of competing creditor plans.
• No absolute priority rule. Equity owners can retain their interest even if unsecured creditors are not paid in full — provided the plan commits projected disposable income for three to five years.
• No quarterly U.S. Trustee fees. A significant savings versus a traditional Chapter 11.
• Standing Subchapter V trustee. A trustee is appointed to facilitate plan negotiation rather than displace management.

For most New York small businesses with debts under the Subchapter V cap, Subchapter V is the better choice than traditional Chapter 11. The cost difference is substantial.

Traditional Chapter 11

Larger or more complex cases proceed as traditional Chapter 11 cases. Traditional Chapter 11 offers tools Subchapter V does not:

• Debtor-in-possession financing. Court-approved post-petition loans, often with priming-lien status, used to bridge operations through reorganization.
• Sale of assets free and clear under section 363. A bankruptcy sale free of pre-existing liens, claims, and interests, with court-approved bid procedures and stalking-horse arrangements.
• Rejection of executory contracts and leases. Available in Subchapter V too, but more commonly deployed in traditional cases.
• Cramdown of secured creditors. Confirmation over the dissent of a secured class, provided the plan satisfies the cramdown requirements.

Common Triggers for a Chapter 11 Filing

• A scheduled foreclosure sale of business real estate.
• A bank that has declared default and is sweeping the deposit accounts.
• A landlord seeking to evict despite the business's ability to generate going-forward cash flow.
• A piece of overpriced equipment financing that needs to be crammed down to fair value.
• Pending mass-tort or commercial litigation that needs to be channeled into a single forum.
• A merger or acquisition that needs a 363 sale process to deliver clean title.

Individual Chapter 11

High-net-worth or high-debt individuals whose debts exceed the Chapter 13 ceilings file Chapter 11 instead. Individual Chapter 11 has its own rules — the absolute priority rule applies to individual debtors except as modified by recent case law, and post-petition earnings become property of the estate. We handle individual Chapter 11s for clients with large guarantees, professional malpractice claims, or substantial real estate holdings.

How a Chapter 11 Case Runs

1. Pre-filing planning. First-day motions are drafted, cash collateral is negotiated, vendors are mapped, and a financial advisor is selected if needed. Pre-filing planning is the single biggest determinant of whether a Chapter 11 succeeds.
2. Filing and first-day hearings. The petition, schedules, statement of financial affairs, and first-day motions (cash management, employee wages, utilities, critical vendors) are filed and heard in the first one to two weeks.
3. Operations and reporting. The debtor in possession operates the business, files monthly operating reports, and complies with U.S. Trustee guidelines.
4. Plan negotiation and drafting. Negotiations with secured lenders, landlords, and large unsecured creditors. Disclosure statement and plan filed.
5. Solicitation and confirmation. Creditors vote on the plan. The court holds a confirmation hearing.
6. Effective date and consummation. The plan goes effective, distributions begin, and the debtor emerges with restructured obligations.

Costs and Timing

Chapter 11 is the most expensive chapter of the Bankruptcy Code. Subchapter V reduces the cost significantly, but legal fees, U.S. Trustee fees, accountant fees, and Subchapter V trustee fees still need to be funded out of operations. We provide a written budget at engagement so there are no surprises.

To discuss whether Chapter 11 or Subchapter V fits your business, call 212-233-1233 for a confidential consultation.