If you are reading this, there is a good chance your business is in trouble. Maybe your business has been struggling to stay afloat. You are also probably wondering, “What is the process of filing a Chapter 11? How much is a Chapter 11 retainer? What is the difference between a Chapter 7 bankruptcy and a Chapter 11?” If you are a business owner facing financial trouble, or you have a family member or a business partner who is, you need to know what you will face if you file for bankruptcy. For a business, that comes down to two choices: Chapter 7 or Chapter 11.
Your Business Will Close Down
Chapter 7 means “liquidation.” That is a fancy way of saying your business will close down. Many business owners aren’t happy with the idea of liquidating their companies, but it is an option. In a Chapter 7, the property of your business will be liquidated, and your business will cease to exist. The process will take about a year to a year-and-a-half, and your attorney will charge you whatever their fee is. The cost is different depending on how much experience they have and what type of complexity is involved. The figures in this article come from one bankruptcy law firm’s published fee schedule, and there the attorney’s fees for a business case start at $2,500. The bankruptcy court will also charge a filing fee of $335 which you pay at the time of filing. So, the minimum cost will be $2,835.
Business Reorganization
A Chapter 11 is a business reorganization. The business does not shut down. It continues operating and it will still exist once the case is complete. A Chapter 11 usually takes somewhere between 18 and 24 months to complete. The way it ends is a little unusual. At some point, the bankruptcy judge officially decides to accept the proposed reorganization plan for the business. Then, technically speaking, the case is called “administratively closed.” When the business has completed everything the reorganization plan requires the business to do (which usually means all payments have been made as specified), then it’s time to reopen the case so the business can get a discharge. The discharge tells all of the business’ creditors that the case is finished and that all debts have been dealt with.
So how much does it cost? At the very least, there are three components. First, the lawyer gets paid. Again, it depends on the lawyer, but the firm quoted here says it charges a minimum of $7,500.00, with $2,500.00 for the pre-petition work, and then $5,000 held in a trust for the business. Once the petition is filed, billing switches to hourly. Those post-filing fees have to be approved by the bankruptcy court, and if the bill runs past what is sitting in trust, the business must come up with the difference.
Second, there is a court fee of $1,717.00. There is a third cost to the Chapter 11 case. You must pay the US Trustee a minimum quarterly fee of $325. That fee will add up each quarter. The minimum fee will go up based on how much money the business disburses (disburses means money leaves the business). The minimum retainer to start the case is $9,217. That covers the $7,500 attorney fee and the $1,717 filing fee; the trustee fees come on top of it, quarter after quarter.
A Chapter 11 is very paper heavy and very detailed and relatively quick in the small business realm. Your business becomes the debtor in possession. You need to get a new federal employer identification number. You need to get a new bank account. You need to have all the paperwork ready to go.
The Records You Need
Whichever chapter you choose, the records you need are much the same. You need to have tax returns for the previous three years. You need bank statements for the previous six months. You need a profit and loss statement from the beginning of this year through the end of the month before. You need an inventory of what you sell. If you’re a clothing store, every piece of clothing. If you’re a hair stylist, you need a list of every product you sell. And then you need an inventory of what you own: What is in the store? What kind of fixtures? Do you have a cash register? Are you using a vacuum? Do you have a computer? Are you using a printer? What type of furniture do you have? What type of technology do you have? Then, what debts do you have? Who do you owe money to? IRS, credit cards, sales tax. And for any of them, you need to list the name and address of any cosigners or anyone else who’s involved, including your personal guarantee if you have one. Then you need a list of the leases and the agreements. So if you have a sublease, or a vehicle lease or office lease or furniture lease, that needs to be included in there. Then you need an accounts receivable - that’s the money you think you’re going to get.
Gaps in that paperwork can add to the bill. One possible extra cost is if there’s no inventory, or the inventory isn’t accurate, or the inventory is outdated. You’d have to go get an appraiser to come in and appraise what you’ve got. Another possibility is maybe you have money coming in, but it’s an amount that may be uncertain. Then you’d have to go get an actuary to come in and tell you what the present value is. So maybe you have a contingency fund or a settlement fund that you expect to receive some day in the future; the actuary would tell you what the present value is as of the day you file.
Add it all up and the floor for a business bankruptcy in 2026 is roughly $2,835 for a Chapter 7 and $9,217 for a Chapter 11, before hourly billing, quarterly trustee fees, or an appraiser or actuary. Ask your attorney to confirm the current court filing fees before you budget. We are not lawyers, but if you’re in trouble, you should get one. If you are drowning, however, do not wait to see how much worse you get.
