Basics of Chapter 11 Bankruptcy Procedure—and Communications

Thom Weidlich 10.29.20


With so many companies — especially retailers — filing for bankruptcy in these troubled times, we are republishing this post we did on our subscription CrisisResponsePro service way back in 2015 (!) on U.S. bankruptcy procedure; the examples are also from 2015. On Oct. 15, 2020, we re-published our post covering aspects of writing a bankruptcy press release, which you can read here.

In our previous post, we provided some tips on writing a press release about a Chapter 11 bankruptcy filing. We said that, while we certainly hope your company never needs to resort to such court protection, it’s good to know the best communications approaches in the area.

That goes for the life of the bankruptcy proceeding, too. So here we discuss how a Chapter 11 bankruptcy unfolds, where reporters’ interest gets piqued, and the things to keep in mind for skillful communications.

Generally, a Chapter 11 filing, which we’re focusing on here, is for companies seeking to stay in business, reorganize their debts, and then exit court protection (Chapter 7 is usually for companies looking to liquidate).

The Filing

As stated in the previous post, the bankruptcy procedure starts with the troubled company filing a voluntary petition for bankruptcy protection. (Creditors can also file an involuntary bankruptcy petition against a debtor.) Along with this filing the debtor company will provide other information such as total assets and liabilities and a list of unexpired leases.

Whether your bankruptcy is newsworthy will depend on obvious criteria: how big you are, how high-profile, whether trade media cover you. For example, on Sept. 5, when American Apparel filed for Chapter 11 protection, it garnered a lot of coverage because the company has been so troubled, including having had to boot out its founder.

By filing the voluntary petition, the debtor becomes the debtor-in-possession, meaning it keeps control of the company’s assets as it goes through the reorganization process (in other words, a trustee doesn’t take over).

The company will also file so-called first-day motions to allow it to continue to operate by, for example, paying employee wages and establishing a cash-management system. Also, the judge needs to approve the arranged debtor-in-possession (DIP) financing.

First Day Hearing

If reporters are interested in your bankruptcy, they will attend the first day hearing. While they will most likely report on the judge’s rulings on first-day motions (for the most part, they are allowed) the journalists will be looking for color on what got the company in trouble. It’s best to have your narrative in place about how the company plans to right itself. In other words, with the media, focus on the future, not past missteps.

For example, a Law360 article (subs. req’d.) reported that a bankruptcy judge approved the use of cash collateral by oil and gas driller Samson Resources Corp.; the story notes that the bankruptcy filing will allow the company to shed more than $3 billion in debt.

Exclusivity Period

From the day the bankruptcy petition is filed, the debtor-in-possession has a 120-day exclusivity period during which only it (i.e., not the creditors) can file a reorganization plan. The judge often grants extensions to this period. If the debtor hasn’t filed a plan during the allotted time, then others can and it is not unusual for dueling plans to develop. If your bankruptcy is being covered, the exclusivity period and extensions to it will be covered, as the looming deadline adds drama to the bankruptcy story.

One of the most important ramifications of a Chapter 11 filing is the automatic stay. Once a company files, this suspends all judgments, collections, foreclosures, and other activities (such as the filing of lawsuits). Creditors will often ask the court to “lift” the automatic stay for various reasons (such as to continue state-court litigation filed before the bankruptcy petition). If a creditor, and conflict, are important enough, the lifting of the stay may get covered.

A big moment in a Chapter 11 proceeding is the appointment of a creditors committee, typically made up of the largest unsecured creditors (creditors that don’t have security interests in the bankrupt’s assets). The creditors committee works with the debtor to develop a reorganization plan. It is usually a big enough event to be covered.

Also contentious (and often newsworthy) will be adversarial proceedings, lawsuits within the bankruptcy. These lawsuits may allege, for example, a “fraudulent transfer” (money taken out of the bankrupt “estate” in a period too close to the bankruptcy filing).

Disclosure Statement

Another big moment in a Chapter 11 procedure is the filing of the disclosure statement, which explains the reorganization plan to creditors. (Sometimes with small businesses a disclosure statement doesn’t have to be produced if the plan itself is adequate.) The disclosure statement will provide, for example, the reasons for the bankruptcy filing, financial information, a description of the Chapter 11 reorganization plan, and much more.

Reorganization Plan

Once the judge approves the disclosure statement, the debtor can start soliciting votes for approval of the reorganization plan. The plan describes how each class of creditor will be treated in the reorganization. Creditors whose claims are “impaired” — that will get less than they’re owed — get to vote on the plan. Certain creditors will typically oppose the plan and will try to round up other opponents.

If the filing was prearranged or prepackaged, the procedure will go much faster as important creditors will have already voted on, or at least reviewed, the plan.

After the votes are counted, the judge holds a confirmation hearing on whether to approve the plan. Many interested parties may object to the plan. Approval of the plan is one of the most newsworthy events in a bankruptcy proceeding.

During the entire proceeding it is best to keep to a narrative about how the reorganization will position the company (usually, both operationally and financially) for future growth. After all, bankruptcy exists to provide a second chance. There’s no reason not to make that clear in your communications.

Photo Credit: Shutterstock

This is an abridged version of an article that appeared today on the CrisisResponsePro paid subscription portal. (CrisisResponsePro subscribers can access the full version by clicking here. ID and password are required.) To take advantage of all of the content, data, and collaborative resources CrisisResponsePro has to offer, contact us at

Related:Eleven Tips on Crafting a Chapter 11 Press Release