Whether it’s EIDL loan repayment, vendor disputes, or operational debt — many of these clients eventually consider Chapter 11 reorganization as a path to recovery. But there’s one issue that derails these cases more than almost anything else: lapsed or missing business insurance. When business owners fall behind financially, they often start prioritizing bills — payroll, rent, vendors, taxes — and one of the first things to go is their insurance policy. Premiums seem optional until something goes wrong. Unfortunately, when it comes to Chapter 11, insurance isn’t optional at all. Without active general liability and property coverage, a Chapter 11 case can be dismissed before it even starts. Chapter 11 protects the debtor — the court essentially tells creditors to pause collections while the business reorganizes. But creditors have rights, too. Courts require proof of insurance as confirmation that creditors’ interests remain protected while they wait. If the debtor’s assets aren’t insured, the court views it as an unacceptable risk — one that violates the good-faith obligations of the filing. In other words: No insurance = no protection = no Chapter 11.For debtors already behind, even a short lapse in coverage can create a domino effect — one that leads to a dismissed bankruptcy case and, ultimately, liquidation. It can take months to find new coverage, and by then, it’s often too late.

Here’s how you can help protect them (and strengthen your referral relationships):

•  Ask about insurance early. Make sure your clients maintain general liability, property, and workers’ comp coverage even during hardship. 

•  Refer before they default. Bankruptcy planning goes much smoother when debtors still have valid insurance. 

• Collaborate with experienced counsel. Firms like Keck Legal can step in early to preserve the integrity of a case and guide clients through compliance. 

Chapter 11 is a lifeline for struggling businesses — but it only works if the foundational protections are in place. Failing to maintain insurance can turn a potential recovery into a complete shutdown. Consulting with an experienced attorney as soon as possible is mandatory. Understanding your options can help protect your business and your financial future.