Chapter 11 Eligibility Requirements: 5 Tests Before a Business Can File

Almost any operating business in the United States may file Chapter 11, and a surprising number of petitions are still dismissed before anyone reaches the merits. The gap between those two facts is where the eligibility requirements live. Few of them concern money. Most concern who the business is, who signed for it, and why it filed.

The five tests below are the ones a court, a creditor, or the United States Trustee can raise against an entity's petition. The debt limits people ask about first come second, and matter least.

1. The Business Must Be a Kind of Debtor the Code Admits

Section 109 opens with a threshold: only a person that resides or has a domicile, a place of business, or property in the United States may be a debtor at all. "Person," under section 101(41), includes an individual, a partnership, and a corporation. The chapter-specific rule follows in 11 U.S.C. 109(d), which admits to Chapter 11 a railroad, certain clearing organizations, and "a person that may be a debtor under chapter 7 of this title (except a stockbroker or a commodity broker)."

The eligibility question therefore routes through Chapter 7, and Chapter 7 is defined by exclusion. Section 109(b) shuts out railroads (which Chapter 11 then readmits), domestic insurance companies, banks, savings banks, credit unions, savings and loan associations, small business investment companies licensed by the SBA, and similar institutions, along with foreign insurers doing business here and foreign banks with a United States branch. Those enterprises have their own regulators and their own insolvency regimes. Everyone else, which is to say the restaurant group, the trucking company, the dental practice organized as a professional corporation, the LLC that holds a single franchise, passes the first test by not being one of them.

A sole proprietor passes it as an individual, because the business and the owner are one legal person. That changes the later tests, as the fourth section shows.

2. Ordinary Chapter 11 Has No Debt Limit

Section 109(d) contains no dollar figure, and a company owing two hundred thousand dollars is as eligible as one owing two hundred million. The ceilings owners read about belong to other doors. Subchapter V is open only to a small business debtor whose qualifying debts do not exceed $3,424,000, as adjusted on April 1, 2025; bills to restore a $7.5 million limit passed the Senate in August 2026 and the House in September 2026, and neither had become law as of September 27, 2026. That definition also excludes a debtor whose primary activity is owning single asset real estate and companies subject to SEC reporting.

Chapter 13, for its part, is closed to entities entirely.

3. Someone With Authority Must Decide to File

In February 1945 the Supreme Court dismissed a corporate petition that minority shareholders had filed without the board's authorization, and the rule it stated has outlasted the statute it construed. Price v. Gurney held that the authority to put a corporation into bankruptcy "finds its source in local law," and that where those purporting to act for the company lack that authority, the court "has no alternative but to dismiss the petition." The decision arose under the former Bankruptcy Act. Courts still apply its rule.

Local law means state corporate or LLC law and the company's own governing documents: the bylaws, the operating agreement, any shareholder or member agreement that requires a particular vote or the consent of a particular investor. The petition itself, Official Form 201, requires an authorized representative to declare, under penalty of perjury, "I have been authorized to file this petition on behalf of the debtor." That sentence is signed before a judge ever reads it. It is tested only when someone objects.

Someone may. A co-owner who was not consulted, a lender whose loan documents gave it a say in major decisions, an investor holding a class of equity with blocking rights: each can argue that the resolution was never properly adopted. The time to read the operating agreement is before the filing, not after the motion.

4. An Entity Files Through a Lawyer

In 1993 the Supreme Court restated, as a rule nearly two hundred years old, that a corporation "may appear in the federal courts only through licensed counsel," and it applied that rule to artificial entities generally. A bankruptcy court is a federal court. An LLC or corporation cannot sign its own petition as a litigant, which is why Form 201 carries a separate signature line for the attorney, with a bar number.

The requirement brings its own disclosures. A debtor's attorney must file a statement of compensation paid or promised within the year before the petition, and in Chapter 11 the lawyers the debtor in possession employs need court approval and must be disinterested. None of this applies to a sole proprietor in the same way, since an individual may appear without a lawyer (unwisely, in a Chapter 11 case, though nothing forbids it). The individual carries a different prerequisite instead: section 109(h) requires a person filing in his or her own name to have completed budget and credit counseling with an approved agency during the 180 days before the petition, a condition no company faces.

5. The Petition Must Be Filed in Good Faith

Nothing in section 109 mentions good faith, and nothing in the Code requires a Chapter 11 debtor to be insolvent. Both statements are true. Neither settles the question.

In 1999 the Third Circuit took up the petition of SGL Carbon Corp., a graphite electrode manufacturer that filed while defending antitrust suits and whose own president described it as financially healthy. The court held that "a Chapter 11 petition is subject to dismissal for 'cause' under 11 U.S.C. § 1112(b) unless it is filed in good faith," and it found that this petition "lacks a valid reorganizational purpose." It acknowledged that the Code encourages early filing, and it added that the encouragement "does not open the door to premature filing."

The phrase that does the work is valid reorganizational purpose. A company that files to restructure debts it cannot pay, keep operating, and propose a plan has one. A company that files to change its negotiating position in a single lawsuit may not, and the distinction is harder to draw than it sounds, because most distressed businesses file with one creditor in mind, the one that is closest to taking the account or the equipment, and a stay against that creditor is also, if one is being precise, a stay that protects every other creditor from a race to the assets. The test looks at purpose. Purpose is read from the facts the debtor cannot rearrange after the fact: the timing, the balance sheet, what the owners said in public, whether there is a business left to reorganize at all.

Whether a company that files the week before a funder's judgment is enforced, with every other creditor current, has a reorganizational purpose or a litigation one is a question the statute leaves to the judge who hears the motion.

But good faith does not end at the petition. Section 1129(a)(3) separately requires that the plan be "proposed in good faith and not by any means forbidden by law," and section 1112(b)(4) lists conduct during the case, from unexcused failures to report to spending a lender's cash collateral without leave, that can end it. The court watches the whole case with the same question it asked on the first day.

Where a Settlement Review Fits Among the Tests

A business that passes all five tests is eligible. Whether it should file is a separate matter, and a lawyer is the right adviser for it. Some companies need what only the court can give: a stay against a levy or foreclosure, the power to reject leases, a plan vote that binds a creditor who will not negotiate. For them bankruptcy counsel comes first.

Others are eligible for Chapter 11 and do not need it, because the pressure comes from a handful of merchant cash advance funders or lenders whose balances might be restructured by agreement. Delancey Street reviews that possibility in a free, confidential initial conversation. It is a debt settlement firm, not a law firm; it does not file petitions or advise on eligibility, and it coordinates with independently licensed counsel when a matter turns legal. The five tests describe who may enter the courthouse. They say nothing about whether the door needed opening.