1. Can Operating Cash Support Continued Business Activity?
Start with what the business earns and spends before servicing existing debt. This distinguishes an operation burdened by past borrowing from one losing money on ordinary activity. Bankruptcy can change certain debt obligations, but filing does not restore margins or supply operating funds.
Separate Operating Results from Legacy Debt Payments
Compare income statements with bank activity, receivables, and loan payments. Accounting profit may include unpaid sales, while loan principal consumes cash without appearing as an operating expense.
| Financial Finding | What to Examine | Effect on the Analysis |
|---|---|---|
| Operating cash is positive before debt payments | Loan installments, arrears, and payment dates | Revised debt terms may address the shortfall |
| Reported profit exceeds available cash | Unpaid invoices, collection delays, and inventory purchases | The business may need working capital |
| Ordinary expenses exceed collections | Margins, pricing, purchasing, and staffing | Reorganization requires credible operating changes |
Operating cash is positive before debt payments
- What to ExamineLoan installments, arrears, and payment dates
- Effect on the AnalysisRevised debt terms may address the shortfall
Reported profit exceeds available cash
- What to ExamineUnpaid invoices, collection delays, and inventory purchases
- Effect on the AnalysisThe business may need working capital
Ordinary expenses exceed collections
- What to ExamineMargins, pricing, purchasing, and staffing
- Effect on the AnalysisReorganization requires credible operating changes
Test a 13-Week Forecast against Actual Collections
A rolling 13-week cash forecast shows when funds arrive and which weeks need financing. It is a planning tool, not a universal statutory filing requirement. Include:
- Expected receipts: Customer payments supported by collection history
- Operating expenses: Payroll, suppliers, rent, insurance, and maintenance
- Taxes and case costs: Current taxes, professional fees, and administration
- Funding gaps: Weeks when available funds fall below required payments
Test slower collections and lower sales against the budget. Count potential asset-based lending only after reviewing borrowing availability, collateral requirements, terms, and any necessary court approval.
2. Claims That Restrict Available Reorganization Funds
Total debt does not establish how much cash a plan needs. Collateral rights, statutory priorities, and payment timing affect that calculation. Prepare a debt schedule identifying these features rather than assuming creditors can receive the same percentage or accept identical payment delays.
Identify Cash Collateral and Essential Secured Assets
Money in a bank account may be subject to a lender’s security interest. Under 11 U.S.C. § 363(c)(2), using cash collateral generally requires consent from each entity holding an interest or court authorization. Budget for any required adequate protection of those interests. The automatic stay can pause covered enforcement actions, but it does not authorize spending restricted cash.
Separate Priority Taxes from General Unsecured Claims
Review tax types, periods, assessments, liens, and disputed amounts. Qualifying priority tax claims generally require installment treatment under § 1129(a)(9)(C), ending within five years after the order for relief, unless the claimant agrees otherwise. Required payments must also satisfy statutory value and treatment standards. The five-year period does not restart at confirmation. Include current taxes in operating expenses rather than accumulating new tax debt to pay old obligations.
Keep Owner Guarantees Separate from Company Obligations
Identify the borrower and guarantor for each debt. Company bankruptcy generally does not release an owner’s separate guarantee or automatically stop collection against that owner. State law and contract terms may determine the guarantee’s scope, while federal law governs the bankruptcy case. Keep personal exposure separate from company projections, and document the funding source for any proposed owner contribution.
3. Does Chapter 11 Offer a Workable Path for This Business?
Chapter 11 generally permits continued operations while the debtor seeks plan approval, subject to oversight and applicable court orders. Subchapter V modifies that framework for qualifying business debtors. The financial review must connect procedural eligibility with the company’s funding needs and required creditor payments.
Distinguish Subchapter V Eligibility from Financial Viability
Revenue and employee count alone do not determine eligibility. Review:
- Debt amount: The applicable statutory ceiling and qualifying debt calculation
- Business connection: At least half of qualifying debt must arise from commercial or business activities
- Debt classification: Contingent, unliquidated, insider, and affiliate obligations
- Statutory exclusions: Whether the debtor falls within an excluded category
Meeting the entry requirements does not establish that operations or plan payments are affordable.
Match Plan Payments to Supported Projections
Under § 1129(a)(11), confirmation generally requires that the plan is unlikely to lead to liquidation or further financial reorganization, unless contemplated by the plan. Support projections with collection history, reliable orders, realistic margins, and documented financing. Nonconsensual Subchapter V confirmation adds requirements under § 1191 involving projected disposable income or equivalent value over three to five years, payment ability, and applicable default remedies. This is not a universal Chapter 11 repayment period.
Compare Creditor Recovery with the Liquidation Alternative
Section 1129(a)(7) generally requires that an impaired creditor that has not accepted the plan receive at least the value it would recover in Chapter 7 liquidation. Estimate recoveries after liens, sale expenses, administrative costs, and applicable priorities. This business liquidation analysis supplies a creditor-recovery benchmark. Affordable monthly payments alone do not establish that proposed distributions meet it.
4. Use the Financial Review to Choose the Next Step
Compare business bankruptcy options using documented assumptions. The findings below identify which route deserves further review, rather than establishing an automatic outcome. A bankruptcy and restructuring review should resolve the specific funding or payment obstacle before management commits to filing.
| Financial position | Route to evaluate | Question to resolve |
|---|---|---|
| A payment extension addresses the shortfall | Creditor negotiations | Will the necessary creditors cooperate? |
| Viable operations and available funding support proposed payments | Chapter 11, including Subchapter V if eligible | Can the business satisfy confirmation requirements? |
| Losses continue without a credible correction or funding source | Sale or orderly wind-down | What approach preserves available value and addresses creditor claims? |
A payment extension addresses the shortfall
- Route to evaluateCreditor negotiations
- Question to resolveWill the necessary creditors cooperate?
Viable operations and available funding support proposed payments
- Route to evaluateChapter 11, including Subchapter V if eligible
- Question to resolveCan the business satisfy confirmation requirements?
Losses continue without a credible correction or funding source
- Route to evaluateSale or orderly wind-down
- Question to resolveWhat approach preserves available value and addresses creditor claims?
30 Oct, 2026
