How to File Business Bankruptcy: 8 Steps Before the Petition Is Signed

Most of what decides a business bankruptcy happens before the petition, during a stretch of weeks when the owner still controls every account and no trustee has yet asked a single question. The forms come later. They record the preparation; they cannot replace it.

What follows is the sequence counsel will generally want completed, or at least begun, before anyone signs: eight steps in the order the work tends to arrive. How a business files bankruptcy on paper is a separate subject. This page concerns what the business does first.

1. The Cash Forecast Comes First, Because the Case Will Demand One Anyway

A week-by-week forecast of receipts and disbursements is the document every later decision rests on. It shows what the business collects, what payroll, rent, insurance, inventory, and taxes will cost, and what remains once the merchant cash advance debits and other collections stop. It should also carry a line for professional fees, since the case itself becomes an expense of the business.

The bankruptcy process will require these numbers in some form regardless. A debtor in a traditional Chapter 11 small business case files monthly operating reports on Official Form 425C, and a Subchapter V plan must contain "projections with respect to the ability of the debtor to make payments" under 11 U.S.C. 1190. Building the forecast before the petition moves that work to a point where it can still change the decision. (It also reveals, occasionally, that the business loses money before any debt payment at all, which is information a court process cannot cure.)

A forecast built on last year's revenue functions like a tide table printed for a different harbor: the arithmetic is sound and the water is somewhere else. Use the most recent months, including the weak ones.

2. Payments to Insiders Stop, and the Past Year's Payments Get Written Down

A trustee's power to recover preferential payments reaches back 90 days for ordinary creditors and one full year for insiders under 11 U.S.C. 547(b)(4). The Code's definition of an insider of a corporate debtor includes directors, officers, persons in control, and their relatives. Repaying a member's loan to the company, or a spouse's, in the months before filing is the kind of transfer that definition was written for.

The Statement of Financial Affairs will ask about it directly. Line 30 of Official Form 207 asks whether, within one year before filing, the business gave an insider value "in any form, including salary, other compensation, draws, bonuses, loans, credits on loans." Prepare that answer now, from the ledger, while the person who kept the ledger still works there.

3. The Records Are Assembled Before Anyone Asks for Them

Bank statements for every account, two or three years of tax returns, the current balance sheet and profit and loss statement, every financing agreement with its UCC filings, leases, insurance certificates, and a list of every disbursement made in the 90 days before the expected filing date. The last item is not invented. The U.S. Trustee's Region 21 operating guidelines, dated February 2026, list among the materials a debtor must produce before its initial debtor interview a "list of all disbursements and transfers of property made during the 90 days prior to the petition date."

You cannot explain a transfer you cannot find.

A bankruptcy case is, in the end, a sustained exercise in accounting for money, and everything else in it follows from whether that accounting holds.

4. The Owners Vote Before the Lawyer Files

An entity files only with the authority its governing documents and state law require. Where owners disagree about bankruptcy, the disagreement will surface in this step, and it is better confronted in a members' meeting than in a motion to dismiss the petition.

5. The Chapter Is Chosen After the Forecast, Not Before It

A business whose forecast shows no path to profit is looking at liquidation, whether in Chapter 7 or otherwise. One whose forecast works once the old debt is restructured is looking at Chapter 11, or at Subchapter V if it qualifies; the Subchapter V debt limit is $3,424,000 (the figure in effect since April 1, 2025), with Congress weighing legislation to restore a higher figure that had not been enacted as of late September 2026, so counsel should confirm the limit before relying on it. There are exceptions to this order, though they tend to belong to companies that no longer need a forecast at all.

6. Cash Collateral Needs a Plan Before the First Deposit After Filing

Under section 363(a) of the Bankruptcy Code, "cash collateral" includes deposit accounts and cash equivalents "in which the estate and an entity other than the estate have an interest," along with the proceeds of collateral. Section 363(c)(2) forbids the debtor to use it unless every entity with an interest consents or the court authorizes the use following a hearing on notice, and section 363(e) allows the secured party to demand adequate protection.

After the petition, the money in the operating account can belong, in the statute's eyes, to two parties at once.

The preparation is concrete. Identify every creditor whose agreement or UCC financing statement claims an interest in receivables or deposit accounts, which may include a bank, an equipment lender, and one or more merchant cash advance funders, depending on what each contract and filing actually says. Decide with counsel whether to seek consent from each of them or to file a motion for use of cash collateral with the petition, and prepare a budget that the motion can attach. A business that files without this step may find that the money in its own account is money it may not spend.

7. Payroll and Withheld Taxes Are Timed Around the Petition Date

Income and payroll taxes withheld from employees' wages are held in trust for the government, and the Internal Revenue Code imposes a personal penalty matching the unpaid amount on any responsible person who willfully fails to pay them over. The business's bankruptcy does not remove that personal exposure. Counsel will want to know the date of the last payroll, whether its withheld taxes were deposited, and where the next payroll falls relative to the planned filing date.

Employees' unpaid prepetition wages receive a priority in bankruptcy, capped at $17,150 per individual for wages earned within 180 days before the petition or the date the business ceased operating, whichever came first (the figure adjusted April 1, 2025). The cap is the ceiling on the priority. It says nothing about when the employees will actually be paid.

8. The Order of Announcements Is Decided in Advance

Employees, the landlord, key customers, suppliers, and the bank each learn of a filing in some order, and the order matters. After filing, Bankruptcy Rule 2015(a)(4) requires notice to banks, utilities, and landlords holding the debtor's deposits. In Chapter 11, a utility may alter service if it does not receive adequate assurance of payment satisfactory to it within 30 days after the petition. Whether the largest customer should hear the news from the owner or from a court notice is a question worth holding for a day.

What a Settlement Review Can Add Before Step Five

Delancey Street negotiates business debt. Because the company is not a law firm, it prepares no petitions and represents no one in court. Its free, confidential initial review asks whether the business's advances, loans, and vendor balances can be resolved by negotiation, and it brings in independently licensed attorneys where a question calls for one. The forecast from step one serves both inquiries. If it shows a business that cannot operate even after the debits stop, a settlement will not fix that, and the owner belongs with bankruptcy counsel.

A petition is filed on a single day. The business that files it was assembled over the weeks before.