Inside a Chapter 11
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
7 min read · updated October 7, 2026
Restructuring basics explained what Chapter 11 is for: fixing a company's balance sheet under court protection while the business keeps running. This lesson follows a case from the day it is filed to the day the company emerges, because interviewers like to ask what happens at each step.
Day one: the filing
The moment a company files, the automatic stay takes effect. Creditors must stop trying to collect: no lawsuits, no foreclosures, no seizing collateral, no demanding payment of old debts. That breathing room is the first thing a filing buys.
The company keeps running its own business as the debtor in possession. Management stays in place; a court-appointed trustee replaces it only in unusual cases such as fraud or gross mismanagement. That is a large part of why companies choose Chapter 11 rather than Chapter 7, where a trustee takes over to liquidate.
On the first day the company asks the court for a batch of first-day orders that let the business operate normally:
- permission to use cash that is collateral for its lenders, and interim approval of its DIP loan;
- permission to keep paying employees' wages and benefits;
- permission to pay critical suppliers who could otherwise stop shipping;
- arrangements to keep utilities on, which must receive adequate assurance of payment, typically within 30 days, or they can cut service;
- permission to keep its existing bank accounts and cash management running.
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Frequently asked
- How does a class of creditors vote to accept a Chapter 11 plan?
- A class accepts if creditors holding at least two thirds of the dollar amount of claims voted, and more than half of the number of creditors who voted, vote yes. Both tests count only those who actually vote. A few large holders can carry the dollar test but not the headcount test, so both matter.
- What is cram-down?
- Confirming a plan over the objection of a class that voted no. It is allowed only if at least one impaired class has accepted, and the plan treats the dissenting class fairly: no unfair discrimination, and fair and equitable, which for unsecured creditors means no junior class keeps anything while they are not paid in full.
- What is the difference between a prepackaged and a pre-negotiated Chapter 11?
- In a prepackaged case the company solicits and wins the creditors' votes before it files, so it can be confirmed in weeks. In a pre-negotiated case the company has agreed the deal with key creditors, often in a restructuring support agreement, but formally solicits votes after filing. A freefall case files with no deal at all and takes longest.
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