Key Milestones on the Chapter 11 Journey

A Chapter 11 case is often viewed as a single event, but in reality it is a structured, multi‑stage process shaped as much by negotiation and strategy as by statute. From the moment a petition is filed through confirmation and emergence, each milestone carries implications for how value is preserved, shifted, or lost among stakeholders. For debtors, understanding this process is essential to stabilizing operations and positioning the business for a viable path forward. For creditors, knowing when and where leverage exists can meaningfully affect recoveries.

The discussion that follows walks through the key phases of a Chapter 11 case, highlighting practical considerations that influence outcomes at each stage and offering a clear roadmap from filing to emergence—and for a deeper dive, Harold Israel’s full Daily DAC article provides additional detail and perspective.

Filing the Petition

A Chapter 11 case begins with the filing of a petition with the bankruptcy court. The petition can be filed by the company itself or, under certain circumstances, against the company by its creditors. The debtor becomes a “debtor-in-possession,” generally retaining control of operations and assets while working through the reorganization process. The voluntary filing of a bankruptcy case triggers an automatic stay, which, among other things, immediately halts collection efforts, lawsuits, and foreclosures.

First Day Orders

Except for transactions in the ordinary course of business, a debtor cannot take any action without court permission. To ensure continuity of its operations, a debtor files a series of motions – known as “first day motions” – to obtain court orders to stabilize operations during bankruptcy, including paying certain pre-bankruptcy debts. These motions typically include authority to use its cash and/or borrow money, pay employees, continue essential vendor relationships, and maintain insurance coverage. These orders are crucial for maintaining business continuity. Unless authorized by the court, a debtor cannot pay any debts before the date it filed for bankruptcy.

Creditors’ Committee Formation

The U.S. Trustee appoints unsecured creditors to a committee to represent their interests. This committee plays a vital role in negotiations, can retain professionals at the debtor’s expense, and provides a check on the debtor’s actions.

Claims Bar Date

As a general rule, a creditor must file a proof of claim in order to get paid for amounts it is owed before the bankruptcy case was filed. These proofs of claim must be filed before a deadline that is set by the court.

Contracts and Leases

Bankruptcy allows a company to escape certain unfavorable contracts and leases and to assume (and assign) favorable contracts and leases, subject to certain conditions, including paying past due amounts.

Sale

In many cases, a company uses bankruptcy to sell its assets. The Bankruptcy Code sets forth the rules that govern such sales, including providing notice, setting up procedures to assume and assign contracts, and holding an auction to obtain the highest or best price for the assets.

Plan and Disclosure Statement

A debtor usually leaves bankruptcy pursuant to a plan. A plan can be used to distribute the proceeds of a sale to the debtor’s creditors or as a means for the company to operate after bankruptcy. A plan is a binding contract between the debtor and its creditors, setting forth how claims will be treated and how the debtor will operate (or wind down) after the plan is approved – known as confirmation.

While Bankruptcy Code provides the framework, the terms of the plan are shaped by negotiations, financial projections, and practical trade-offs among competing interests. For business owners, a reorganization plan is the vehicle that allows the business to emerge from bankruptcy and operate going forward. For creditors, recognizing where leverage exists, and where it does not, can drive better recoveries. Understanding the typical timeline and critical milestones can help stakeholders navigate what lies ahead.

The debtor classifies these claims into groups based on similar characteristics: secured claims, general unsecured claims, and equity interests. Secured creditors sit at the top of the priority ladder, followed by unsecured creditors, and then equity holders.

A plan is always accompanied by the filing of a disclosure statement, which is like a registration statement, that explains the plan’s terms, the circumstances leading to bankruptcy, financial projections, and risks associated with the plan. The court must approve (such approval can be conditional) the disclosure statement as containing adequate information before creditors vote on the plan.

Plan Voting and Confirmation

Creditors vote on the plan by class. Acceptance requires both a majority in number and two-thirds in dollar amount of voting claims within an class. At least one impaired class must vote to accept the plan for it to be confirmed. The court then holds a confirmation hearing to determine whether the plan meets legal requirements, including the “best interests” test and feasibility requirements.

Even if a class rejects the plan, confirmation may still be possible through “cramdown” if the plan is fair and equitable and doesn’t unfairly discriminate.

Plan Effectiveness and Emergence

Once confirmed, the plan binds all parties. Debts are discharged as provided, distributions begin, and the reorganized debtor emerges under a new capital structure. Success ultimately depends on the debtor’s ability to perform under the plan’s terms and execute its post-bankruptcy business strategy.

For all stakeholders, understanding these milestones is essential for navigating the path from financial distress to a fresh start.

To learn more about the chapter 11 process, read this recent article quoting Harold Israel. Facing questions on a restructuring? Reach out to Harold or another member of LP’s Financial Services & Restructuring Group.