When Can a Company Do a Repeat Chapter 11 Filing?
Chapter 11 is meant to allow businesses to reorganize and continue operating while repaying creditors and to reemerge solvent. However, some companies face issues and setbacks that prevent achieving that goal. This may be due to overly optimistic restructuring plans, an inability to cut costs effectively or unexpected changes in the market. In such circumstances, a second Chapter 11 — known informally as a Chapter 22 — may be allowed. However, there are strict requirements that must be met.
Companies filing for Chapter 22 must show they have new and compelling reasons for doing so, beyond what they addressed in their first Chapter 11. Courts may view a second filing skeptically, particularly if it appears that the business is merely attempting to avoid debt without realistic plans to operate sustainably. To gain court confirmation, the company typically must present a precise plan for making significant changes that were unachievable in the first bankruptcy, such as selling major assets, pursuing strategic mergers, or implementing drastic cost-cutting measures.
A business seeking Chapter 22 plan confirmation must also demonstrate that it acted in good faith in both filings. Good faith in this context means showing that the previous Chapter 11 filing wasn’t abused or used to delay payments without a real intent to restructure. Courts will examine the previous case details, the company’s efforts toward genuine operational improvement, and any changes in its business model to ensure a second filing is warranted.
If the court rejects the second petition, the company is generally barred from filing for another bankruptcy for 180 days. This rule applies to all Chapter 11 filings, including Chapter 22, and is set out in Section 109(g) of the Bankruptcy Code. The purpose of this bar is to prevent abuse of the bankruptcy system by discouraging repetitive, strategically timed filings that can harm creditors.
The 180-day bar isn’t an absolute rule in every situation. Judges have some discretion and may adjust this restriction based on the unique circumstances surrounding the case, although such exceptions are rare. After this period, a company could technically file again, although repeated filings could lead to further court scrutiny and increased skepticism toward any future restructuring plans. Frequent filings are likely to make creditors and stakeholders wary, affecting the company’s credibility and potentially making it harder to negotiate favorable terms for restructuring.
So while a Chapter 22 may be an option, companies face high standards in proving they have a valid reason to file again. A rejected Chapter 22 can leave the company with no option but to file for Chapter 7 liquidation. An experienced Chapter 11 attorney can advise you on devising a new reorganization plan that has the best chance of receiving court approval.
The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with multiple locations across the region. If your company needs help with debt reorganization, contact us online or call 310-271-6223 to schedule a consultation.
