Chapter 11 bankruptcy, like bankruptcy under other chapters, start with the general filings of a bankruptcy petition, supporting schedules, and statement of financial affairs. These are the same forms required by consumer bankruptcy cases except that some of the questions are answered differently because the debtor is an operating business.
Chapter 11 bankruptcy is distinguished from consumer bankruptcy by the immediate supplemental filings of what are termed “first day motions.” Immediately upon filing a Chapter 11, an operating business requires court approval to continue business operations. For example, approval is needed immediately to pay current employees and to authorize payment of wages that accrued prior to the filing. Wage payments are needed so that the employees of the bankrupt business do not resign or find other employment. Similarly, first day motions and orders are issued so that the operating business can pay suppliers, vendors, and other people and entities the business uses on an ongoing basis.
The US Trustee’s office has a standard package they send to Chapter 11 debtors regarding standard operating guidelines. If a creditor has a lien on the debtor’s cash in the banks, the court would typically authorize the debtor to use the cash for operations.
Prior to filing, the bankruptcy attorney will usually draft a series of first day motions so that they may be filed immediately after the bankruptcy petition. The court will hear these motions on an emergency basis and issue appropriate orders so that the business may survive. At the hearing on first day orders, the court will issue orders finding the debtor’s filing in compliance and setting forth standards that the Court expects for the debtor’s operation.
First day motions are not actually heard the first day after the filing but they are heard on an emergency basis, usually within the first week. Notice has to be given to creditors where the debtor has their contact information. As a practical matter, some first day motions will be heard before some creditors have notice.
First day orders include an application by the attorney to be retained by the debtor, an authorization for the debtor to pay the attorney up to 70 percent of the billing up to date with the provision that the billings may be scrutinized by the court at a later date.