8 Questions Business Owners Ask First: A Chapter 11 Bankruptcy FAQ

The first questions an owner asks about Chapter 11 are almost never about the plan. They concern the payroll due Friday, the guaranty signed three years ago, and whether the regular customers will read about the filing before they hear it from the owner.

Those are sensible questions, and the Bankruptcy Code answers most of them with more specificity than owners expect, though not always with the answer they would prefer. The eight below are taken in the order they tend to arrive.

1. Can I Keep Running the Business During Chapter 11?

Yes, by default. Section 1107(a) gives the debtor in possession the powers of a trustee, and section 1108 lets it keep operating the business unless the court orders a change. Routine sales, purchases, and payroll proceed without a hearing under section 363(c)(1).

Two limits arrive with the petition. Cash in which a lender holds an interest cannot be spent without that lender's consent or a court order, and the court can replace management with a trustee for cause, which section 1104(a) defines to include fraud, dishonesty, incompetence, or gross mismanagement. Most owners keep the ledger. The ledger is no longer private.

2. Will I Lose the Company?

Not by filing. The shares change hands only if the plan says so, or if the case fails and becomes a liquidation.

The harder answer sits in section 1129(b). If a class of unsecured creditors votes against the plan in a traditional Chapter 11 case, the court can confirm over that vote only if the class is paid in full or no one junior to it, owners included, keeps anything on account of a junior interest. Subchapter V removes that rule for an eligible small business, whose plan instead commits its projected disposable income over a period the court fixes, at least three years and at most five. Eligibility turns on qualifying debts of no more than $3,424,000, the amount in force since April 1, 2025; Congress has passed separate Senate and House bills to restore a higher limit, neither of them law as of September 27, 2026, so confirm the current figure with counsel.

3. What Happens to My Personal Guaranty?

Nothing, at first, and that answer surprises more owners than any other in this list.

The automatic stay in section 362(a) protects the debtor. The Second Circuit held in 2003 that a stay under section 362(a) is limited to debtors and does not reach co-defendants who have not filed, and it allowed extension to a non-debtor only where a claim against that person would have an immediate adverse economic consequence for the estate. A funder holding an owner's personal guaranty can, as a general rule, sue the owner while the company sits in Chapter 11, unless a court is persuaded on motion to extend protection.

The discharge follows the same line. When the company's plan is confirmed, section 1141(d)(1) discharges the company. The guarantor signed a different promise, and the company's discharge does not reach it (a plan can be negotiated to include releases or to pay the guaranteed debt in a way that leaves nothing to collect from the owner, but those outcomes are the product of bargaining with the specific creditor, and they are not something the Code hands the owner merely because the company filed).

So the guaranty is, in practice, the reason many owners look at their own finances alongside the company's before anyone files. A personal bankruptcy is a separate case with separate rules. Whether it belongs in the conversation is a question for counsel who can see both balance sheets at once.

You sign for the company and then the company files and you are still signed.

4. How Long Does Chapter 11 Take?

No statute fixes the length of a case, and any estimate given before the debts are scheduled and the creditors identified is a guess. The Code does set clocks. In a traditional case the debtor alone may file a plan during the first 120 days, a window extendable to no more than 18 months. A small business case that has not elected Subchapter V must file its plan within 300 days. A Subchapter V debtor must file within 90 days, and its plan commits disposable income for at least three years.

5. What Does Chapter 11 Cost?

The filing fee is $1,738 as of September 2026. Outside Subchapter V, quarterly fees owed to the U.S. Trustee Program follow for as long as the case stays open. Professional fees are the larger number, and every one of them must be approved by the court under section 330.

6. Can I Pay Employees?

Postpetition wages are ordinary operating expenses, and the business pays them. Wages earned before the filing are a claim, and the Code gives part of that claim priority: under section 507(a)(4), unsecured wage and commission claims earned within 180 days before the petition (or before the business ceased operating, if earlier) rank fourth, up to $17,150 per individual under the amount adjusted April 1, 2025.

Paying those prepetition wages on the first day requires a motion, and Bankruptcy Rule 6003 bars the court from granting it within 21 days unless relief is needed to avoid immediate and irreparable harm. Unpaid withheld taxes sit apart from all of this: the trust fund recovery penalty can be assessed against a responsible person personally, and the company's case does not discharge an individual's exposure.

7. Will Customers Know?

Some will. Section 107(a) makes papers filed in a bankruptcy case and the court's dockets public records open to examination without charge. The list of the 20 largest unsecured creditors, the schedules, and every motion are part of that record.

But the Code does make room for commercial secrets: section 107(b) requires the court, on request, to protect a trade secret or confidential commercial information. Customers who paid deposits for goods or services for personal or household use hold a priority claim under section 507(a)(7) up to $3,800 each (the adjusted amount effective April 1, 2025). A business with that kind of customer should assume those customers may learn of the case from the notices sent to creditors, if not from the news.

8. Can the Case Be Converted?

Yes, in either direction of intent. The debtor may convert its own case to Chapter 7 under section 1112(a), with narrow exceptions. A creditor or the United States Trustee may ask the court to convert or dismiss for cause under section 1112(b), and the statute's list of causes reads like an inventory of the ways cases fail: continuing losses with no reasonable likelihood of rehabilitation, unauthorized use of cash collateral, missed reports, unpaid postpetition taxes, unpaid fees owed under chapter 123 of title 28, and failure to file or confirm a plan on time.

The hearing on such a motion must begin within 30 days of its filing. It is the reason the reports matter.

A Question Worth Asking Before These Eight

Chapter 11 is the right tool for a business that needs the stay, needs to reject a lease, or faces a creditor that will not negotiate at any price. For those businesses, bankruptcy counsel comes first. Delancey Street, which is not a law firm and takes no part in filing or handling bankruptcy cases, looks at the earlier question: whether merchant cash advance and business debts can be restructured by agreement, reviewed confidentially and without charge, with independently licensed counsel brought in where the matter turns legal.

The ledger, in either case, is the first thing anyone will ask to see.