How to File Bankruptcy and Keep Your Business: 6 Conditions That Decide It

A business survives its own bankruptcy only when the chapter chosen leaves someone other than a liquidating trustee holding the keys, and even then the survival is conditional, renewed hearing by hearing, on terms the owner does not fully set. Filing is the easy part. Six conditions decide whether the company that enters the case is the company that leaves it.

The Bankruptcy Code reads the same in every district. What changes from case to case is the arithmetic of the debts, the wording of the lender documents, and the patience of a landlord, which is why two restaurants with similar balance sheets can leave the same courthouse with different futures.

1. The Chapter Must Leave the Debtor in Possession

Chapter 11 assumes the business keeps running. Section 1107 gives a debtor in possession the rights and duties of a trustee, and Section 1108 provides that the business may operate unless the court, on request and after a hearing, orders otherwise. In a Subchapter V case the same result comes from Section 1184, which hands the debtor a trustee's powers "including operating the business of the debtor." Chapter 13 reaches a sole proprietor through Section 1304: a self-employed debtor who incurs trade credit is "engaged in business," and unless the court orders otherwise may operate it.

Chapter 7 is the exception that clarifies the rule. Its trustee may run a business only if the court authorizes operation "for a limited period," and only where operation is "consistent with the orderly liquidation of the estate," which is the statute's way of saying the running serves the selling. An owner who files Chapter 7 for the company has chosen a different destination, and the road there is short.

For an individual owner the question has a second layer, because the person and the company are separate debtors, or separate non-debtors, depending on who signs the petition (a personal filing by the sole member of an LLC does not put the LLC itself into bankruptcy, though Section 541 makes the member's interest in the company property of the member's estate notwithstanding any transfer restriction in the operating agreement, and what a trustee may then do with that interest is a matter courts resolve differently). Whether a personal filing keeps the business therefore turns on the owner's chapter as much as the company's.

2. The Debts Must Fit Through the Door Chosen

Subchapter V is open to a small business debtor whose noncontingent, liquidated secured and unsecured debts do not exceed $3,424,000 on the petition date, excluding debts owed to affiliates and insiders, with at least half arising from business activity. That figure has applied since April 1, 2025. Congress has been considering a restoration of the $7.5 million limit; as of late September 2026 the bill had passed each chamber in separate form without being enacted, and the figure in force on the filing date is the one that governs.

Chapter 13 carries its own ceilings under Section 109(e): noncontingent, liquidated unsecured debts of less than $526,700 and secured debts of less than $1,580,125, tested separately. It is open only to an individual with regular income. A sole proprietor qualifies because the business and the person are one. An LLC or corporation cannot file Chapter 13 at all, and its owner's Chapter 13 leaves the company's own debts where they were.

A company above the Subchapter V line is left with traditional Chapter 11, which still permits operation at a different price, discussed in the sixth condition. Whether a disputed merchant cash advance balance counts toward the limit is for the court.

3. The Cash Must Be Usable on the First Day

Operating a business means spending its receipts, and receipts are frequently someone else's collateral. Section 363(a) defines cash collateral to include deposit accounts and cash equivalents in which the estate and another entity both hold an interest, including the proceeds of collateral, whether acquired before or after the case began. Under Section 363(c)(2) the debtor may not use cash collateral unless each entity with an interest consents or the court authorizes the use after notice and a hearing, and Section 363(e) requires the court, on request, to condition that use on adequate protection of the creditor's interest.

Consider a hypothetical distributor collecting $40,000 a month, whose bank holds a perfected lien on receivables and deposit accounts. On the morning after filing, the payroll due that Friday is paid from money the bank has an interest in. Without the bank's consent or an interim order, the distributor is spending in violation of the statute, and Section 1112(b)(4)(D) lists "unauthorized use of cash collateral substantially harmful to 1 or more creditors" among the grounds for converting or dismissing the case. The motion to use cash collateral is, if we are exact about it, the first real hearing in most operating cases, and the business that arrives without a budget has already told the court something about itself.

The petition protects the business from its creditors. It offers no protection from the business's own budget.

Whether a merchant cash advance funder holds an interest that turns daily receipts into cash collateral depends on the contract, the UCC filing, and the court. A funder will say it does. Whether a party that bought receivables, rather than lending against them, can also claim them as collateral is something the statute does not settle, and the parties are left to argue it.

4. The Premises Must Be Kept Past Day 120

A tenant debtor must assume or reject a nonresidential lease by the earlier of plan confirmation or the 120th day, counted from the order for relief,, or the lease is deemed rejected and the premises must be surrendered. The court may extend that period by 90 days for cause; any further extension requires the landlord's prior written consent. Up to 210 days, then, absent the landlord's agreement.

Assumption has a price attached. Section 365(b)(1) requires the debtor to cure defaults or give adequate assurance of a prompt cure, compensate the landlord for pecuniary loss, and give adequate assurance of future performance, and a lease terminated under state law before the filing cannot be assumed at all. A landlord who has watched three months of rent go unpaid, who reads in the petition that the tenant now has up to 210 days to decide, and who knows that every default must be cured before assumption, holds more of the business's future in that single decision than most of the creditors on the mailing matrix, and the tenant who has not spoken with the landlord before filing has left that decision to the one party with the least reason to be generous.

5. The License Cannot Be Pulled Solely for Filing

Section 525(a) forbids a governmental unit to deny, revoke, suspend, or refuse to renew a license, permit, or franchise "solely because" the holder is or was a debtor, was insolvent, or has not paid a dischargeable debt. A liquor license, a contractor's license, a food permit.

The operative word is "solely." An agency may still apply neutral financial requirements and enforce obligations the bankruptcy leaves standing.

6. The Owners Must Pay for the Equity They Keep

In a traditional Chapter 11, Section 1129(b)(2)(B) states the absolute priority rule: a dissenting class of unsecured creditors must be paid in full before a junior interest, meaning the owners, may retain anything on account of that interest. Section 1181(a) removes that rule from Subchapter V, and Section 1191(c) substitutes a commitment of projected disposable income for three to five years.

A business that qualifies for Subchapter V and cannot win an accepting vote may keep its owners. A business above the line that cannot pay dissenters in full may keep operating and still change hands. The Code treats the enterprise and the people who own it as two different things to save, and it prices them separately, the way a probate court can keep a family bakery's ovens lit while the question of who inherits the recipe card is still being briefed.

When the Business Needs Counsel, and When It Needs a Negotiation

A company that must hold a lease past the landlord's patience, bind dissenting creditors, or stop a secured lender from sweeping its accounts needs bankruptcy counsel, because only a court supplies those powers. Delancey Street is not a law firm and does not file or conduct bankruptcy cases. It negotiates business debt outside court, merchant cash advances above all (the company also lists SBA and stacked debt restructures among its work), and works alongside attorneys licensed independently of it when a matter calls for legal work. Where the pressure comes from two or three funders rather than twenty creditors, a free and confidential initial review can show whether a negotiated route keeps the business without passing through the six conditions above.

Bankruptcy law is better at deciding who owns what remains than at deciding whether anything should remain. An owner who wants to keep a business is asking the second question, in a statute written mostly to answer the first.