First Day Motions in a Small Business Chapter 11: 6 Orders Filed With the Petition

The first day of a small business chapter 11 is decided largely by paper filed before anyone appears. The petition arrives with the balance sheet, statement of operations, cash flow statement, and most recent federal tax return that section 1116(1) requires a small business debtor to append, and alongside them comes a stack of motions, each with a proposed order, asking the judge for permission to keep doing on Tuesday what the business did on Monday. Nothing in the Code is titled "first day motion." The label is practice vocabulary, and the list varies by district and by business, though for an operating company six of them recur, because each answers a question the business faces on its first morning.

The governing limit is Bankruptcy Rule 6003. Within 21 days after the petition, "[u]nless relief is needed to avoid immediate and irreparable harm," the court must not grant a motion to use estate property, "including a motion to pay all or a part of a claim that arose before the petition was filed," or to employ a professional, or to assume a contract. Every first day order is, or should be, an argument about irreparable harm. It is also, if we are being precise, an entry on a ledger the creditors will read later.

1. The Interim Cash Collateral Order Lets the Business Spend Its Own Receipts

Under 11 U.S.C. 363(c)(2), a debtor in possession "may not use, sell, or lease cash collateral" unless "each entity that has an interest in such cash collateral consents" or the court authorizes the use once notice has gone out and a hearing has been held. Cash collateral is defined broadly in 363(a): cash, deposit accounts, and other cash equivalents in which the estate and another entity both have an interest, including proceeds of collateral. For a company whose lender holds a blanket lien, that describes the operating account on the morning of filing.

Rule 4001(b)(2) sets the pace. The final hearing may begin "no earlier than 14 days after" the motion is served, but on request the court may hold a preliminary hearing sooner, after which it "may authorize using only the cash collateral necessary to avoid immediate and irreparable harm to the estate pending a final hearing." The interim order is therefore a budget, and the motion will propose adequate protection for the secured creditor in one of the forms section 361 allows, periodic payments or a replacement lien among them.

A merchant cash advance adds a question the budget cannot settle. If the funder filed a UCC financing statement against receivables and its agreement grants a security interest, it may claim that the daily receipts are its cash collateral; if the transaction is a true sale of receivables, the funder may claim that some receipts were never the estate's at all; and if neither argument holds, the funder is an unsecured creditor with no cash collateral claim to assert. Which of those it is depends on the documents and on the court, and the motion must be drafted around the uncertainty rather than on top of it. The stakes are not theoretical. Section 1112(b)(4)(D) lists "unauthorized use of cash collateral substantially harmful to 1 or more creditors" among the causes for dismissal or conversion.

Where the business needs new money rather than permission to spend old money, a parallel motion under section 364 seeks approval of postpetition credit, under the same interim structure in Rule 4001(c).

2. The Wage Order Keeps the Payroll Whole Through the Filing

A payroll period that straddles the petition date leaves employees holding prepetition wage claims, and paying those claims is paying a prepetition debt, which Rule 6003 permits in the first 21 days only on a showing of immediate and irreparable harm. The Supreme Court in Czyzewski v. Jevic Holding Corp. (2017) noted that courts "have approved 'first-day' wage orders that allow payment of employees' prepetition wages," and distinguished those orders from the distribution it rejected.

And the Code supplies the ceiling. Section 507(a)(4) grants priority to wages earned within 180 days before the petition or the cessation of business, up to $17,150 per individual under the adjustment effective April 1, 2025. A wage motion that stays inside that cap asks to pay early what the employees would be paid first in any event.

3. The Utility Order Buys Thirty Days of Light

Section 366(a) bars a utility from altering or discontinuing service "solely" because of the filing or unpaid prepetition bills. In a chapter 11 case, 366(c)(2) allows the utility to discontinue service if it has not received adequate assurance of payment "satisfactory to the utility" within 30 days after the petition, and the court may modify the amount. An administrative priority claim does not count as assurance. The motion proposes a deposit and a procedure for disputes.

4. The Cash Management Order Decides Which Bank Accounts Survive

United States Trustee operating guidelines generally require a debtor to close prepetition accounts and open debtor in possession accounts. The Region 21 guidelines, for example, state that "[t]he debtor must close its prepetition bank accounts and open new debtor-in-possession accounts and provide documentation of these actions to the United States Trustee." A business whose customers pay through a merchant processor, whose processor settles into one account, and whose payroll service draws from another (a common arrangement, and one that cannot be rebuilt overnight without the card deposits landing in a closed account while the payroll draws bounce against an empty one) will ask the court to authorize the existing arrangement for a period, or to phase in the change. The court can allow it. The U.S. Trustee may object.

5. The Critical Vendor Order Pays a Few Old Debts to Protect the New Supply

The most contested order on the list asks permission to pay some prepetition suppliers in full because the business cannot operate without them. In In re Kmart Corp. (7th Cir. 2004), the court rejected section 105(a) and the doctrine of necessity as authority for such payments ("A 'doctrine of necessity' is just a fancy name for a power to depart from the Code") and held that a debtor relying on section 363(b)(1) "must prove, and not just allege," that the vendors would stop dealing without full payment and that the other creditors would benefit. The argument that every supplier is critical (which is the argument most first day drafts begin with) survives in the Seventh Circuit only with evidence. Other circuits and bankruptcy courts differ in approach.

6. The Scheduling Order Buys Time for the Paperwork

Schedules and the debtor's Statement of Financial Affairs are due with the petition or within 14 days under Rule 1007(c), and a business filing on short notice often asks for more time. In a small business case, section 1116(3) limits any extension to 30 days after relief is ordered "absent extraordinary and compelling circumstances," and section 1187(b) carries that duty into Subchapter V. The motion is routine. The deadline it produces is not flexible.

What the First Day Asks of the Owner

These motions are drafted, filed, and argued by bankruptcy counsel. Retaining that counsel is itself a court matter, and Rule 6003 ordinarily keeps approval of professional employment outside the first 21 days. Delancey Street plays no role in a chapter 11 filing; not a law firm, the company instead negotiates business debt, chiefly funder balances, outside court. Its free and confidential review is aimed at an earlier question, whether those balances can be resolved by agreement before a petition becomes necessary, with independently licensed counsel brought in where the issues turn legal. A business that cannot make its next payroll without a court order has already answered that question, and it needs a bankruptcy lawyer that week.

A first day package is a portrait of the business drawn by its own hand, in the only medium a court trusts. The ledger it opens will be read against everything that follows.