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When a bankruptcy case transitions from Chapter 11 to Chapter 7, stakeholders experience significant changes. Chapter 11 focuses on reorganization, allowing debtors to restructure their debts and operations, while Chapter 7 shifts the focus to liquidation. This conversion often occurs when a debtor’s estate becomes administratively insolvent, meaning it lacks sufficient funds to cover the costs of the bankruptcy process. Consequently, a trustee is appointed to manage and liquidate the debtor’s assets, aiming to pay off creditors as much as possible.

Navigating Consignment Rights Before Bankruptcy

Consignment arrangements can be complex, especially when a consignor seeks to protect their interests before a bankruptcy filing. Under the Uniform Commercial Code (UCC), consignors must follow specific procedures to perfect their security interest in consigned goods, elevating their status from unsecured to secured creditors. This process involves filing a UCC financing statement and providing a Purchase Money Security Interest (PMSI) notice to ensure priority over other creditors. Failure to perfect these interests can result in losing priority to the consignee’s creditors or a bankruptcy trustee.

Chapter 11 bankruptcy, known as “reorganization bankruptcy,” is a critical process for preserving a debtor’s business value. This blog explores the life cycle of a Chapter 11 case, emphasizing the importance for creditors and other stakeholders to understand the stages and their potential impact on financial interests. Part II of this series delves into the middle and final stages, including plan confirmation and post-plan administration.

After years of uncertainty and regulation by enforcement, the U.S. may finally be moving toward a more comprehensive framework for the regulation of digital assets. On June 4, 2025, the House Committee on Financial Services held a hearing on American Innovation and the Future of Digital Assets: From Blueprint to a Functional Framework. The hearing followed Committee Chairman French Hill’s introduction of H.R. 3633 — the CLARITY Act of 2025 (the Act) — on May 30, 2025. The Committee is expected to continue its markup of the Act at its June 10, 2025, Full Committee Markup hearing.

Chapter 11 bankruptcy, known as “reorganization bankruptcy,” is a process aimed at preserving a debtor’s business value. It unfolds in five stages, with Part I focusing on prepetition planning and the initial filing. These stages lay the groundwork for the proceedings and influence the debtor’s ability to reorganize effectively.

We are pleased to share with you our latest publication, “Navigating Change: First 100 Days under the Trump Administration,” authored by our Digital Assets + Blockchain team. This retrospective examines the pivotal developments in the digital assets industry during the initial phase of the Trump administration.

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the systematic liquidation of a business debtor’s assets by a bankruptcy trustee, with the proceeds distributed to creditors. This process signifies the end of the business partner for creditors, although occasionally, the trustee may operate the business briefly to sell assets as a going concern. While Chapter 7 shares similarities with Chapter 11, such as the automatic stay and claim filing deadlines, it presents unique challenges and opportunities for creditors.

Understanding the differences between receivership and bankruptcy is crucial for businesses facing financial distress. A receivership involves the appointment of an independent third party by a court to manage and preserve a business’s assets, primarily to maximize the value of the secured lender’s collateral. In contrast, bankruptcy generally benefits the borrower who has become insolvent and is governed by the Bankruptcy Code, allowing existing management to maintain control and potentially discharge debts.

For companies in financial distress, retaining key employees during a Chapter 11 restructuring can be crucial for success. Key Employee Retention Plans (KERPs) and Key Employee Incentive Plans (KEIPs) are tools used to incentivize employees to stay and perform. KERPs are typically designed for non-insider employees and offer bonuses tied to restructuring milestones, while KEIPs target senior management with performance-based bonuses. Both plans aim to mitigate the uncertainty and disruption of working at a company in bankruptcy.