Bankruptcy ✦ Chapter 11
The Business Isn’t Dead. It’s Overleveraged.
A company with real customers and real revenue can still be crushed by its balance sheet: old debt, a bad lease, a judgment, a tax liability that compounded while cash went to payroll. Chapter 11 lets a New Mexico business keep operating while it restructures what it owes under federal court protection. Liquidation is what happens when you wait too long. Reorganization is what happens when you call early.
Overview
What is Chapter 11, and who is it for?
Chapter 11 is the Bankruptcy Code’s reorganization chapter. Unlike Chapter 7, nothing is liquidated by default. Unlike Chapter 13, there is no debt ceiling and no limitation to individuals. Corporations, LLCs, partnerships, and individuals whose debts exceed the Chapter 13 caps all file here. In New Mexico that usually means construction contractors, oilfield service companies, restaurants, medical practices, real-estate owners, and family businesses caught between a revenue dip and fixed debt service. The defining feature is that current management keeps running the company as a debtor in possession, with most of a trustee’s powers, under 11 U.S.C. §§ 1107 and 1108. Nobody takes your keys unless creditors prove cause, which is rare.
- Automatic stay stops lawsuits, levies, and lockouts on day one (§ 362)
- Management stays in control as debtor in possession (§§ 1107, 1108)
- First-day motions keep payroll, utilities, and critical vendors moving
- Priority taxes restructured over up to five years (§ 1129(a)(9)(C))
- Bad leases and contracts rejected (§ 365)
- Most small businesses belong in Subchapter V, and we screen for it first
The Law
The tools Chapter 11 puts on your side of the table
Every one of these is a lever a distressed New Mexico business does not have outside of bankruptcy.
| Tool | What it does | Authority |
|---|---|---|
| Automatic stay | Freezes lawsuits, levies, repossessions, and collection immediately | 11 U.S.C. § 362 |
| Lease & contract rejection | Sheds a bad lease or losing contract; the damages become an unsecured claim | 11 U.S.C. § 365 |
| DIP financing | Court-approved borrowing to fund operations during the case | 11 U.S.C. § 364 |
| Sale free and clear | Sells assets or the whole business free of liens, preserving going-concern value | 11 U.S.C. § 363(f) |
| Cramdown | Confirms a plan over a dissenting class if the plan is fair and equitable | 11 U.S.C. § 1129(b) |
| Tax restructuring | Priority taxes paid over time; penalties often ride as unsecured claims | 11 U.S.C. §§ 507(a)(8), 1129(a)(9)(C) |
How a Chapter 11 case actually unfolds
The petition goes in with first-day motions so the business never misses a beat. For the first 120 days the debtor holds the exclusive right to propose a plan of reorganization (§ 1121(b)), extendable for cause to as long as 18 months. In a traditional case, creditors vote after receiving a court-approved disclosure statement under § 1125, and the court confirms if the plan clears § 1129: the best-interests test, feasibility, and for any dissenting class, the absolute priority rule. Confirmation is a negotiation backed by math. Liquidation analyses, cash-flow projections, and claim-treatment scenarios decide who blinks, and that is accounting work as much as legal work. Here it is done by the same person who argues it.
Individuals in Chapter 11
Physicians, real-estate investors, and owners with personal guarantees often blow past the Chapter 13 debt limits and land in individual Chapter 11. The mechanics differ, post-petition earnings become property of the estate under § 1115 and plan funding borrows disposable-income concepts from Chapter 13, but the result is the same: a court-protected restructuring instead of a decade of judgments and garnishments.
What about the taxes?
In most distressed New Mexico businesses the largest creditor in the room is the IRS or the New Mexico Taxation and Revenue Department. Priority taxes must be paid within five years of the petition date. Payroll withholding creates a second, personal problem: the trust-fund portion follows owners and officers home under 26 U.S.C. § 6672, and gross receipts tax carries its own responsible-person exposure in New Mexico. A restructuring that fixes the company while leaving the owner personally exposed is half a plan. We build both halves together.
The Attorney-CPA Difference
Chapter 11 runs on financial statements. Ours are native.
- Cash-flow budgets, liquidation analyses, and feasibility projections built in-house
- Monthly operating reports done right the first time, not cleaned up after a UST letter
- Tax claims negotiated by someone who defends IRS matters for a living
- Subchapter V eligibility screened before you spend traditional Chapter 11 money
Questions & Answers
Chapter 11 questions, answered
Isn’t Chapter 11 just for big corporations?
Not anymore. Since the Small Business Reorganization Act took effect in 2020, businesses with qualifying debts up to $3,424,000 can use Subchapter V, a streamlined track inside Chapter 11 built for closely held companies. Traditional Chapter 11 handles everything above that line. The right track depends on your debt profile, and we screen for it at the first meeting.
Will I lose control of my company?
Not by default. Management continues operating the business as debtor in possession. Creditors can seek a trustee’s appointment under § 1104, but that requires proving cause such as fraud or gross mismanagement, and it is the exception rather than the rule.
How long does a Chapter 11 take?
A consensual or prepackaged case can confirm in a few months. Contested cases run longer. Subchapter V cases move fastest because the statute requires a plan within 90 days of filing.
Can Chapter 11 handle payroll tax debt?
Yes, carefully. The company’s priority taxes are paid through the plan over up to five years. The trust-fund portion also creates personal liability for owners and officers under 26 U.S.C. § 6672, so the corporate case and the personal exposure have to be managed as one strategy, not two surprises.
What does Chapter 11 cost?
More than any other chapter. Quarterly U.S. Trustee fees, professional fees, and reporting obligations are real, which is exactly why we screen every business for Subchapter V first and quote engagement structures up front instead of billing into the dark.
The worst restructuring plan is the one written after the bank moves first.
If revenue is real but the balance sheet is not working, get an honest read on your options: traditional Chapter 11, Subchapter V, or an out-of-court workout.