Business Bankruptcy in Virginia: 5 Facts for Richmond and the State's Two Districts

If a Virginia company's merchant cash advance falls within the Commonwealth's sales-based financing statute, any confession-of-judgment clause in it is unenforceable, and that single sentence of state law changes the calculation behind a Richmond business bankruptcy before a petition exists. A funder that cannot enter judgment by affidavit must sue, and it must sue in Virginia.

The rest is federal and does not change at the state line. The Bankruptcy Code a Richmond debtor files under is the one a debtor in Reno files under. Five facts are local: the division, the trustee, the court's rules for large cases, the financing statute, and the exemptions an owner can claim.

1. Richmond Is One of Four Divisions in the Eastern District

Under 28 U.S.C. 127, "Virginia is divided into two judicial districts, to be known as the Eastern and Western districts of Virginia." Court for the Eastern District is held at Alexandria, Newport News, Norfolk, and Richmond; for the Western, at Abingdon, Big Stone Gap, Charlottesville, Danville, Harrisonburg, Lynchburg, and Roanoke.

The Eastern District's bankruptcy court is organized in the same four divisions, and the Richmond courthouse is at 701 East Broad Street, Suite 4000, Richmond, Virginia 23219. The court's Divisional Offices page publishes separate hearing procedures for Richmond and Alexandria, which is a reminder that a division is more than a mailing address.

A security policy effective May 23, 2025 governs what visitors carry. Phones and smart watches are locked in a Yondr pouch for the length of the visit.

2. The Trustee Works Upstairs

The United States Trustee Program places Virginia in Region 4, with South Carolina, Maryland, West Virginia, and the District of Columbia, and runs the region from Columbia, South Carolina. The Richmond field office is in the same building as the court: 701 East Broad Street, Suite 4304. Virginia's other field offices are in Alexandria, Norfolk, and Roanoke, and the Eastern District's Local Bankruptcy Rule 2002-1(C) gives the Richmond Division an e-mail service address for the trustee.

3. Complex at $15 Million, Elective From $7.5 Million, Mega Past $100 Million

The Eastern District's Local Bankruptcy Rules, in the version effective December 1, 2025, adopt two tiers of procedure for large chapter 11 cases, and both are local in the fullest sense.

LBR 1075-1 adopts the "Procedures for Complex Chapter 11 Cases in the Eastern District of Virginia." They apply to any case other than single asset real estate "in which the noncontingent, liquidated debt owed by the debtor exceeds $15 million"; to a case with such debt "in excess of $7.5 million and not more than $15 million in which the debtor elects treatment as a complex case by filing a notice of such election with the Petition or within 7 days after the order for relief"; and to any case the court designates. Proposed debtor's counsel "should contact the Designated Contact for the division ... as early as possible prior to filing ... to obtain a date and time for first day hearings."

LBR 1075-2 then adopts procedures for a "Mega Case," a chapter 11 case or group of affiliated cases "in which the total noncontingent, liquidated and non-insider liabilities or assets of the collective debtors exceed $100 million." Mega Cases "shall be assigned randomly ... to any Bankruptcy Judge in the District ... irrespective of the Division in which the Mega Case is filed." A company that files in Richmond with $140 million of liabilities, in other words, may find its case before a judge who sits in Norfolk or Alexandria. There are arguments for and against a random draw of that kind, though they concern companies of a size this page is not written for.

For the small business, the useful reading runs the other way. Subchapter V is open only to a small business debtor, whose qualifying debts may not exceed $3,424,000 under the April 1, 2025 adjustment, and the elective complex tier begins above $7.5 million. A Subchapter V debtor therefore cannot elect into the complex procedures; only a designation by the court would bring it there. Its case proceeds under the general rules, and the court's older local rule on small business chapter 11 cases, LBR 1020-1, now appears in the rules as "[Repealed]."

The court's size tiers, taken together, describe a district that has organized itself around the cases that fill its docket's headlines while leaving the ordinary chapter 11 to the Code, the general rules, and the judge.

LBR 9019-1 separately provides for settlement and alternative dispute resolution, including mediation before judicial or non-judicial mediators, at any size.

4. Virginia Wrote Its Own Rules for Merchant Cash Advances

Chapter 22.1 of Title 6.2 of the Code of Virginia, "Sales-Based Financing Providers," runs from section 6.2-2228 through 6.2-2238 and was enacted in 2022. It is, to be precise, a statute about providers, brokers, and the contracts they write, and its reach depends on who wrote the contract and how large it was. Section 6.2-2229 exempts financial institutions, anyone doing "no more than five sales-based financing transactions with a recipient in a 12-month period," and "A single sales-based financing transaction in an amount over $500,000."

Within that reach, the obligations are specific. Providers and brokers had to register with the State Corporation Commission "On or before November 1, 2022," at a $1,000 initial fee and $500 a year thereafter, and section 6.2-2231 imposes disclosure requirements. Then comes the part a Richmond owner should read twice. Section 6.2-2234 requires suits under the contract to be "brought in a court in the Commonwealth," bars arbitration clauses that require face-to-face proceedings outside the jurisdiction of the recipient's principal place of business, and provides that "No sales-based financing contract shall contain any confession by judgment provision," and that any such provision "shall be unenforceable." Section 6.2-2236 makes a violating provision "unenforceable against the recipient," and section 6.2-2238 gives the Attorney General enforcement authority.

You sign the contract in Richmond, and a lawyer in another state drafts the complaint, and the statute says the complaint comes home.

The chapter does not make a funder's claim disappear, in bankruptcy or out of it. It changes where and how the funder must collect, which is the ground on which a negotiation, or a chapter 11 plan, begins.

5. Virginia Opted Out, and Its Homestead Is Modest

Virginia debtors may not use the federal list. Va. Code 34-3.1 provides that "No individual may exempt from the property of the estate in any bankruptcy proceeding the property specified in subsection (d) of § 522" except as the title permits. The homestead statute, Va. Code 34-4, allows a householder property "not exceeding $5,000 in value or, if the householder is 65 years of age or older, not exceeding $10,000 in value," and separately "real or personal property used as the principal residence of the householder or the householder's dependents not exceeding $50,000 in value," plus $500 for each dependent. Section 34-4.1 adds $10,000 for a veteran with a service-connected disability of 40 percent or more.

The amounts adjust for inflation "On April 1, 2027, and at each three-year interval" after, and the adjustments do not apply to cases commenced before that date. These figures matter only to an owner who files in her own name, usually because a guaranty made the company's debt her own. An LLC claims no homestead.

What the Statute Leaves Open

Some Virginia businesses need Eastern District counsel this week: those with a lender scheduling a sale, a levy on the operating account, or payroll that will not clear. The company behind this page, Delancey Street, cannot file a petition or give legal advice, because Delancey is not a law firm. For the owner with time left, it examines a company's advances, its SBA note, and whatever else is stacked behind them, without a fee, in confidence, and works with independently licensed attorneys where a legal question arises, and a funder that must sue in the Commonwealth and cannot confess judgment has reasons to listen.

The visitor's phone goes into the pouch at the door on Broad Street and comes back on the way out. What a statute takes away from one side of a contract rarely comes back in the same condition.