Business Bankruptcy in Houston: 6 Facts About Chapter 11 in the Southern District of Texas

The rules that make Houston a destination for enormous corporate reorganizations will almost certainly never touch a Houston company with three merchant cash advances and a payroll of eleven. The Southern District of Texas reserves its complex case procedures for debtors with more than $10 million in liabilities, more than 50 parties in interest, or publicly traded claims or interests, and it makes the designation mandatory only at $200 million.

A small business filing chapter 11 bankruptcy in Texas travels a plainer road: the same Bankruptcy Code as anywhere, a Subchapter V election if its debts qualify, and a courthouse on Rusk Avenue that it shares with the giants without sharing their procedures. Six facts define that road in Houston.

1. Thirteen Counties, One Courthouse on Rusk Avenue

Under 28 U.S.C. 124(b), the Southern District of Texas has seven divisions: Galveston, Houston, Laredo, Brownsville, Victoria, Corpus Christi, and McAllen. "The Houston Division comprises the counties of Austin, Brazos, Colorado, Fayette, Fort Bend, Grimes, Harris, Madison, Montgomery, San Jacinto, Walker, Waller, and Wharton." A company in Sugar Land or The Woodlands is a Houston Division company.

Court is held at the Bob Casey United States Courthouse, 515 Rusk Avenue. The Region 7 Office of the United States Trustee, under U.S. Trustee Kevin M. Epstein, is listed at 515 Rusk Street, Suite 3516, and Region 7 covers both the Southern and Western Districts of Texas. The district and bankruptcy courts share one website, txs.uscourts.gov, which is where the bankruptcy judges' procedures are posted.

2. The Complex Case Procedures Were Written for Someone Else

The court's complex chapter 11 page links the current "Procedures for Complex Cases in the Southern District of Texas," effective September 18, 2024 and adopted under Bankruptcy Local Rule 1075-1. A Complex Case is one in which "(i) the total liabilities of the debtors and their non-filing affiliates exceed $10 million; (ii) there are more than 50 parties-in-interest; or (iii) any claims against or interests in the debtors are publicly traded." Below $200 million in liabilities the designation is elective; at or above it, mandatory.

The mechanics are distinctive. A Notice of Designation of a Complex Case must be filed with the petition, and when opening the case "the Office should be selected as 'Complex Docket' regardless of the division in which the case is filed." Pre-filing contact runs through case managers for Judge Alfredo R. Pérez and Judge Chris Lopez, the two judges named in the 2024 procedures. "Unless otherwise ordered, first-day hearings will be conducted as virtual hearings." Certain first-day relief may be granted by final rather than interim order. Where a cash collateral or financing order contains lien stipulations, a creditors' committee "has at least 60 days from the date of the Committee's formation to investigate claims against the lenders and to challenge the extent and validity of any liens." And the court may order mediation of any dispute, with a special rule that in avoidance suits under $25,000 per defendant the plaintiff pays the mediator unless otherwise ordered.

Houston's reputation among bankruptcy lawyers comes from procedures that most Houston businesses will never qualify to use.

That reputation matters to an ordinary debtor in one oblique way. A company with $1.5 million in debt hears, from people who mean well, that Houston is a fast and sophisticated venue, and assumes the speed will attach to its own case. The speed attaches to the complex docket, to cases with case managers and virtual first-day hearings and challenge periods negotiated among institutional lenders. A small debtor's case moves at the pace its own documents allow, which depends far less on the courthouse than on whether the bank statements, the funder contracts, and the tax returns are ready, and on how many of the funders are willing to talk before the first hearing.

None of that is written in a rule. It is an observation about paperwork, and it goes only so far.

3. Filing a Small Business Case in Houston Starts With One Checkbox

A company files on Official Form 201, the voluntary petition for non-individuals. Item 8 carries the box by which a debtor declares that it is a small business debtor under 11 U.S.C. 101(51D) "and it chooses to proceed under Subchapter V of Chapter 11." Eligibility turns on aggregate noncontingent liquidated debts of not more than $3,424,000 (the figure adjusted April 1, 2025, excluding debts owed to affiliates or insiders), at least half of them arising from business activities. A small business debtor must attach its most recent balance sheet, statement of operations, cash-flow statement, and federal income tax return, or a sworn statement that none exists. The fee is $1,738.

The company cannot sign its own way into court. Since Rowland v. California Men's Colony (1993), the Supreme Court's statement that "a corporation may appear in the federal courts only through licensed counsel" has been the working rule for entity debtors, and Form 201 has a signature block for the debtor's attorney. A Subchapter V debtor pays no quarterly U.S. Trustee fees, faces a status conference within 60 days of the order for relief, and must file its plan within 90 days, extendable only for circumstances for which it "should not justly be held accountable."

4. The Stay Shields the Company and Leaves the Guarantor Exposed

A chapter 11 petition stays collection actions against the debtor under section 362(a). It does not, by itself, stay a funder's suit against the owner on a personal guaranty; courts extend protection to non-debtors only in limited circumstances, and by motion.

In 2025 and 2026 Texas changed the rules for the paper a funder uses, as the sixth fact explains, but none of that altered the stay.

5. Texas Measures a Homestead in Acres

Texas Property Code 41.002 defines an urban homestead as "not more than 10 acres of land," with improvements, and a rural homestead as up to 200 acres for a family or 100 acres for a single adult. The limit is acreage, not dollars. It protects an individual's residence against most creditors, subject to exceptions for purchase money, taxes, and liens the owner granted, and it protects nothing owned by an LLC.

6. Chapter 398 of the Finance Code Governs the Funder's Side of the Table

Texas House Bill 700, codified as Chapter 398 of the Finance Code and effective September 1, 2025, regulates commercial sales-based financing. Specific offers under $1 million require disclosures of cost, payment terms, security, and broker compensation. Section 398.055 makes a covered contract's confession of judgment provision void and unenforceable. Rules adopted in July 2026 explain that automatic debits from a recipient's deposit account require a perfected first-priority security interest in all of the recipient's accounts receivable (the statute and rules do not ban ACH debits outright, a reading that circulated in some commentary).

For a Houston debtor the relevance is evidentiary. A funder's compliance, or its failure to comply, becomes part of the record counsel reviews before deciding how to treat that funder's claim in a plan.

A Road That Does Not Pass Through Rusk Avenue

Some Houston businesses belong in front of a bankruptcy judge, and they should hear it without softening: a company that must reject a lease, stop a sheriff's sale, or bind a funder that refuses every proposal needs a Houston chapter 11 attorney, not a negotiator. For others, the question is whether the debts can be resolved by agreement first. Delancey Street will examine that question, at no charge and in confidence, for merchant cash advances and related business debt. The company is not a law firm, does not file bankruptcy cases, gives no legal advice, and brings in independently licensed counsel where legal work is needed; it claims no office in Houston or anywhere in Texas. A review guarantees nothing about how a funder will respond.

The complex docket will keep its reputation. The eleven employees will still need to be paid on Friday.