What happens to my hotel if I file Chapter 11?

Section 362(a) stops the commencement or continuation of a judicial, administrative or other action against the debtor, any act to create, perfect or enforce a lien against property of the estate, and any act to enforce a pre-petition lien against property of the debtor.^[1]

What the stay does not do is change the loan. The balance, the rate, the maturity and the default interest that has been accruing since the breach all survive the filing. The stay buys time, and the Code sets exactly how much. It does not make the hotel profitable.

Section 101(51B) defines single asset real estate as real property constituting a single property or project, other than residential real property with fewer than four residential units, that generates substantially all of the gross income of a debtor that is not a family farmer, and on which no substantial business is being conducted by the debtor other than the business of operating the real property and activities incidental to it.^[2]

A single-hotel borrowing entity clears the first two parts of that test without argument. The third is the fight. A hotel sells rooms, food, meeting space and parking, and whether that is a substantial business beyond operating real property is a finding the judge makes on the record in front of them. The statute carves out small residential property and does not name hotels either way, so an owner should not assume the answer and should not let a lender assert it without a ruling.

Section 362(d)(3) directs the court to lift the stay for a creditor secured by single asset real estate unless, by that date, the debtor has either filed a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, or commenced monthly payments equal to interest at the then applicable nondefault contract rate on the value of the creditor's interest in the real estate.^[1]

Three details decide what that costs. The rate is the nondefault contract rate, not the default rate the note has been running at. The payment is calculated on the value of the creditor's interest in the real estate rather than on the loan balance, which on an underwater hotel is the smaller of the two numbers. And the statute lets the debtor make those payments out of rents or other income at the debtor's sole discretion, notwithstanding section 363(c)(2), which is the one place the Code hands a hotel debtor its own room revenue without a motion.^[1][6] The 90 days can be extended for cause, but only by an order entered inside the first 90 days.

Section 552(a) is the general rule: property the estate acquires after the filing is not subject to a lien created by a pre-filing security agreement. Section 552(b)(2) is the exception, and it was drafted for lodging. Where the security agreement extends to rents, or to the fees, charges, accounts or other payments for the use or occupancy of rooms and other public facilities in hotels, motels or other lodging properties, the lien keeps reaching that money after the filing, subject to the court ordering otherwise based on the equities of the case.^[5]

Section 363(a) defines cash collateral to include cash and deposit accounts in which both the estate and another entity hold an interest, section 363(c)(2) bars using it without each interested entity's consent or a court order, and section 363(c)(4) requires the rest to be segregated and accounted for.^[6] Unauthorized use of cash collateral that substantially harms a creditor is itself cause to convert the case to Chapter 7 or dismiss it under section 1112(b)(4)(D).^[11] So is failure to maintain insurance in a way that puts the estate or the public at risk.^[11]

A non-recourse hotel loan is non-recourse until a listed event converts it, and the list sits in the guaranty and the loan agreement rather than in any public document. Banks, CMBS lenders, life companies and debt funds do not publish their carve-out schedules, so no page can honestly tell an owner what their own documents say about a voluntary filing.

Read the documents with counsel before the petition rather than after it. Where a carve-out does convert on a filing, the effect is to turn a balance the entity cannot pay into a judgment the principals can be pursued for.

Subchapter V eligibility runs through the definition of small business debtor in section 101(51D), which carries two bars for a hotel owner. The first is the exclusion in the definition itself for a person whose primary activity is the business of owning single asset real estate.^[2]

The second is the debt ceiling: $3,424,000 of aggregate noncontingent liquidated secured and unsecured debt, excluding debt owed to affiliates and insiders, raised from $3,024,725 by the triennial adjustment published at 90 FR 8941 on February 4, 2025 and effective for cases commenced on or after April 1, 2025.^[10] The $7,500,000 ceiling many owners remember came from a temporary provision in section 1182(1) that sunset on June 21, 2024, which the same notice records.^[10] A $14,000,000 hotel loan is over the current ceiling by a factor of four on its own.

Section 365(a) lets the debtor, subject to the court's approval, assume or reject any executory contract or unexpired lease.^[7] Section 365(e)(1) says a contract may not be terminated or modified after the case begins solely because of a clause conditioned on the debtor's insolvency or financial condition, the commencement of a case, or the appointment of a trustee or custodian.^[7] Check the termination section of your own agreement for that clause.

Section 365(e)(2)(A) takes it back where applicable law excuses the other party from accepting performance from or rendering performance to the trustee or an assignee and that party does not consent, which is the same test section 365(c)(1) applies to assumption and assignment.^[7] Trademark licensing is the ground franchisors argue it on. If the agreement is assumed, section 365(b)(1) requires the debtor to cure the default or give adequate assurance of a prompt cure, compensate the counterparty, and give adequate assurance of future performance, which on a hotel usually means funding the deferred property improvement plan.^[7] Section 365(n), which protects a licensee when the debtor is the licensor, does not help here, because a franchisee is the licensee and not the licensor.^[7]

Section 1121(b) gives the debtor the exclusive right to file a plan until 120 days after the order for relief, and section 1121(c)(3) runs exclusivity to 180 days to get that plan accepted by each impaired class.^[12] A court can lengthen or shorten both periods for cause, but section 1121(d)(2) caps the 120-day period at 18 months and the 180-day period at 20 months after the order for relief.^[12] After that, anyone can file a competing plan, the lender included.

Confirmation needs at least one impaired class to accept, counting no insider's vote, under section 1129(a)(10).^[13] Where an impaired class rejects, section 1129(b)(1) still lets the court confirm a plan that does not discriminate unfairly and is fair and equitable. For a secured claim, section 1129(b)(2)(A) sets out what that means: the lender keeps its lien and takes deferred cash payments totalling at least the allowed amount of the claim with a present value at least equal to its interest in the property, or the property is sold free and clear with the lien attaching to the proceeds, subject to credit bidding under section 363(k).^[13][6] A plan that cannot show the hotel carrying that payment stream is not a plan, which is why the debt service coverage ratio matters inside a Chapter 11.

The statutory fee for a Chapter 11 case that does not concern a railroad is $1,167 under 28 U.S.C. 1930(a)(3), and item 8 of the Judicial Conference's Bankruptcy Court Miscellaneous Fee Schedule, effective December 1, 2023, adds a $571 administrative fee for a Chapter 11 petition.^[8][9]

The running cost is the quarterly United States trustee fee. During the ten-year period beginning January 1, 2021, section 1930(a)(6)(B) sets that fee at 0.9 percent of disbursements, capped at $250,000, for any quarter in which disbursements total at least $1,000,000, and at the greater of 0.4 percent or $250 below that line.^[8] The 0.9 percent figure came in with Public Law 119-76 and applies to fees for disbursements in any calendar quarter beginning on or after February 6, 2026.^[8] Disbursements means money paid out, not profit, so a hotel meeting payroll and paying vendors crosses $1,000,000 a quarter at a modest size.

The larger bill is professional fees, and no public source publishes what a hotel Chapter 11 costs in counsel, financial advisors and the lender's fees charged to the estate. Ask for an estimate in writing before filing. Failure to file a disclosure statement, or to file or confirm a plan, within the time the court fixes is itself cause to convert or dismiss under section 1112(b)(4)(J).^[11]

Guide

How does hotel financing work, and what does it cost right now?

Other questions in this guide

• What is a loan workout and how does it work for a distressed hotel?
• Can I get a non-recourse loan on a hotel?
• What covenants and cash management will my hotel lender require?
• Should I refinance my hotel or sell it instead?

Terms defined in the glossary

• Non-Recourse Carve-Outs (Bad-Boy Guaranty)
• Hotel Franchise Agreement
• Debt Service Coverage Ratio (DSCR)

Our own data

• Matthews Hotel Markets rate sheet