Can a Small Business Qualify for Chapter 11 if it is Heavily in Debt?

Chapter 11 bankruptcy causes some confusion for certain business owners, including the debt limit that is allowed. Regardless of the amount of debt a business carries, it can file Chapter 11.

Even if your business is struggling with a significant amount of debt, you can still file Chapter 11 bankruptcy. By filing Chapter 11, you can reorganize your debts into a repayment plan while keeping your doors open and continuing to run your business. The bankruptcy laws in the United States do not place a limit on the debt a company carries in order to file Chapter 11. However, there is another option for a streamlined approach to bankruptcy known as Subchapter V, and this does have debt limits.

Debt Limit in Chapter 11 Bankruptcy

Any business, regardless of whether it is a sole proprietorship, limited liability company (LLC), partnership, or corporation, can file Chapter 11 bankruptcy. This is true regardless of how much debt the business carries. Chapter 11 is a time-consuming, highly complicated, and expensive process. It is for these reasons that Chapter 11 is typically used by large corporations or small businesses that exceed the debt limits for the more streamlined option.

Debt Limit in Subchapter V of Chapter 11 Bankruptcy

To make Chapter 11 more affordable and accessible for small business owners, Congress enacted the Small Business Reorganization Act of 2019. This created the streamlined process of Subchapter V of Chapter 11.

Unlike a traditional Chapter 11 bankruptcy, Subchapter V does have a debt limit. This process is only available to small businesses when their debt limit does not exceed $3,424,000 as of 2025. Additionally, at least 50 percent of the debt must have arisen from business or commercial activities.

Important Considerations

When filing Chapter 11 or Subchapter V, there are some important considerations. The reorganization plan is central to both types of bankruptcy. The plan allows businesses to continue operations while repaying creditors over time, usually three to five years. The alternative is filing Chapter 7, which is also known as liquidation bankruptcy because business and possibly personal assets must be sold, and a business must close its doors.

In order for the courts to approve a reorganization plan, the business must show a reasonable likelihood that it will make future profits and be able to make payments under the plan.

Our Bankruptcy Lawyer in Florida Can Determine if You are Eligible

If you are a business owner considering filing for bankruptcy, our Florida bankruptcy lawyer can help. At Brian K. McMahon, P.A., our experienced attorney can review the eligibility requirements with you, help you determine which type of bankruptcy is right for you, and guide you through the process so you obtain the best outcome possible. Call us today at 561-658-1789 or fill out our online form to schedule a free consultation with our experienced attorney and to learn more about how we can help with your case.