Prepackaged, Prearranged, and Free-Fall Chapter 11: Three Approaches

Introduction

Not all Chapter 11 cases look the same. The spectrum runs from rapid prepack cases that confirm in hours (Belk filed and confirmed in 12 hours in February 2021; Sungard's case ran 19 hours from petition to confirmation in 2019) through "free-fall" cases that can stretch for years (typical complex free-fall cases run 18-36 months, with the most contested cases extending 4-5 years). The choice of approach is one of the most consequential strategic decisions in any Chapter 11 engagement, and it gets made during the pre-filing phase based on the company's specific circumstances, the concentration of its creditor base, the urgency of the situation, and whether the case needs to use court-supervised tools to resolve non-financial liabilities.

The three approaches differ primarily in how much creditor support is locked in before the petition. A prepackaged case enters court with a fully negotiated plan that has already been voted on (in compliance with the Bankruptcy Code's voting procedures) by the impaired creditor classes. A prearranged case enters court with a restructuring support agreement (RSA) that locks in plan terms but with the formal vote happening post-petition. A free-fall case enters court without meaningful pre-petition agreement, with the plan negotiated and voted on entirely inside the case. Each approach has distinct timing, cost, and risk profiles that drive the strategic choice.

This article walks through the three approaches in detail: what each one actually means, the recent precedents that illustrate each variant, the rapid prepack innovation that compresses prepackaged cases to days or hours, the comparison across speed, cost, and certainty, and how restructuring bankers select the right approach for each engagement.

The classification of Chapter 11 cases into prepackaged, prearranged, and free-fall is widely used in restructuring practice but is not formally defined in the Bankruptcy Code. The distinctions reflect how much pre-petition negotiation has occurred and how that negotiation maps to the formal Chapter 11 procedures.

Prepackaged Chapter 11

A Chapter 11 case in which the debtor has fully negotiated and documented a plan of reorganization, distributed it along with a disclosure statement to creditors, and conducted formal solicitation of votes (in compliance with Bankruptcy Code Section 1126(b)) on the plan, all before the petition is filed. The pre-petition vote satisfies the post-petition voting requirement, allowing the case to move directly to a confirmation hearing without further solicitation. Prepacks typically last 30-60 days from filing to emergence; "rapid prepacks" under SDNY General Order M-621 (issued January 22, 2024) can confirm in 1-14 days. Belk Inc. holds the record for the fastest prepack: filed and confirmed within 12 hours in February 2021 in the Southern District of Texas.

Prearranged Chapter 11 (Pre-Negotiated)

A Chapter 11 case in which the debtor has negotiated the plan terms with key creditor classes before the petition (typically documented in a restructuring support agreement) but has not conducted the formal solicitation of votes pre-petition. The vote on the plan happens after filing, following court approval of the disclosure statement under Section 1125. Prearranged cases typically run 90-180 days from filing to emergence, with the first 30-60 days devoted to disclosure-statement approval and the formal voting period. The CURO March 2024 case (RSA with 74% of first-lien plus the secured notes) and Mallinckrodt August 2023 case (RSA with 72% of first-lien plus 71% of second-lien; confirmed in 43 days) are recent examples.

Free-Fall Chapter 11

A Chapter 11 case filed without significant pre-petition agreement on plan terms. The debtor enters court with the automatic stay and DIP financing as the principal tools, then negotiates the plan terms during the case with the various creditor constituencies. Free-fall cases are typically driven by emergency liquidity events, sudden operational distress, or situations in which pre-petition negotiation was impossible due to creditor fragmentation. Free-fall cases run 18-36 months for typical mid-cap engagements; the most contested cases (mass tort, complex multi-jurisdictional, or heavily disputed valuations) run 3-5 years.

The spectrum is continuous rather than discrete: a "prearranged" case with 95% RSA support and disclosure-statement work nearly complete is functionally close to a prepack, and a "free-fall" case with informal stakeholder coordination but no signed RSA is closer to a prearranged case. The classification matters because it predicts the case timeline, the cost profile, and the level of certainty about the outcome.

A prepackaged Chapter 11 is the fastest, cheapest, and most certain variant of bankruptcy. The work is concentrated in the pre-petition phase: the debtor and its advisors negotiate the plan with key creditors, draft the plan and disclosure statement, distribute the solicitation materials, conduct the vote, and file the petition only after the plan has been pre-voted by the requisite percentage of each impaired class. The post-petition phase then becomes a court-approval exercise rather than a negotiation.

The Bankruptcy Code's Section 1126(b) explicitly authorizes pre-petition solicitation as long as the solicitation materials provide "adequate information" comparable to a post-petition disclosure statement and as long as the solicitation complies with applicable non-bankruptcy law (typically the federal securities laws for publicly registered debt, the trust indenture for bond issuances, or general contract principles for private credit). The prepetition vote is binding once the case is filed, with the solicited votes counted toward the post-petition voting threshold (more than half in number plus at least two-thirds in dollar amount of the voting claims) without re-solicitation.

The compressed timeline is the prepack's defining feature:

The Sungard Availability Services case set the modern speed record before Belk. The technology company filed Chapter 11 in the SDNY White Plains courthouse in May 2019 with $1.4 billion of liabilities and $496 million of assets. The pre-petition solicitation produced near-unanimous support among the impaired classes, which let the debtor request immediate confirmation. Judge Robert Drain heard the case on the morning after filing and confirmed the plan within 19 hours of the petition, reducing Sungard's debt by approximately two-thirds. The previous record had been held by FullBeauty Brands (under 22 hours). Sungard's customer concentration was the operational driver of the speed: key customers had indicated they would defect to competitors if Sungard remained in bankruptcy, making the speed of the case business-critical. Sungard subsequently filed a separate Chapter 11 in 2022, illustrating the Chapter 22 risk even for record-fast prepacks.

A prearranged Chapter 11 is the modal high-quality bankruptcy case. The pre-petition phase produces the RSA and the DIP commitment; the post-petition phase runs the formal disclosure-statement-and-vote process with the RSA support already locked in. The result is a case that takes longer than a prepack (because the formal vote happens post-petition) but has comparable certainty about the outcome (because the RSA constrains how the major creditor classes can act).

The advantages of prearranged over prepackaged are several. The post-petition vote provides additional procedural cleanliness for the eventual confirmation order, reducing the risk of appellate challenge. The post-petition disclosure statement can incorporate any material developments that occur between RSA execution and filing. The post-petition voting period (28-35 days) gives smaller creditors time to evaluate the plan and form their own views, which can produce more durable creditor support. And the additional time lets the debtor work through residual operational issues (executory contract decisions, claims reconciliation, regulatory approvals) before the case concludes.

The recent prearranged precedents illustrate the range:

The Mallinckrodt case is particularly instructive because it was the company's second Chapter 11 in three years (the first filed October 2020, emerged June 2022). The second filing was structured as a tightly prearranged case with a confirmation timeline of 43 days, illustrating how RSA support combined with practiced bankruptcy counsel can produce very fast prearranged outcomes when the underlying deal is clean.

A free-fall Chapter 11 is the unmanaged variant: the company files without significant pre-petition agreement, often under emergency liquidity pressure or because the creditor base is too fragmented to negotiate with pre-petition. The defining feature is that the substantive plan negotiation happens inside the case, with the various creditor constituencies organizing post-petition through ad hoc groups, the official UCC, equity committees (when warranted), and active participation by the U.S. Trustee.

Free-fall cases face several strategic challenges that prepackaged and prearranged cases avoid. The DIP must fund the case for an indefinite period (often 12-24 months); operational decisions (lease assumption/rejection, executory contract treatment, key vendor relationships) must be made during the case under court supervision; the disclosure statement and plan must be drafted from scratch post-petition; multiple plan iterations may be required to address creditor objections; and the case timeline is largely outside the debtor's control, depending on creditor cooperation and judicial pace.

The First Brands case illustrates a hybrid approach that has become more common: filed effectively as free-fall (no RSA at filing) but with substantial prepetition coordination on the DIP and the case milestones. The DIP provides 12-18 months of runway, and the milestones (business plan by January 31, 2026; RSA by March 28, 2026; sale launch by March 28, 2026) effectively force the case into a prearranged path during the operating phase. This "free-fall with pre-petition DIP coordination" is increasingly the modal approach for emergency filings.

The Purdue Pharma case at the other extreme illustrates how complex multi-stakeholder cases can stretch into multi-year free-fall engagements. Purdue filed in September 2019 and remained in bankruptcy through the June 2024 Supreme Court ruling that struck down the non-debtor releases central to its plan, with the case continuing into 2025-2026 as the parties developed a revised plan. The 5+ year duration reflects the complexity of mass-tort liability, multiple settling and non-settling parties, sovereign claimants, the Sackler family non-debtor release issue, and the appellate review that ultimately reset the framework.

Spirit Airlines illustrates several free-fall dynamics in concentrated form. First filing: Spirit filed Chapter 11 on November 18, 2024 after sustained operational deterioration and the failed merger with JetBlue earlier in 2024. The first case ran 4 months, with emergence on March 12, 2025 after a financial-only restructuring that left the operational footprint substantially intact. Second filing: just 5 months after first emergence, Spirit filed again on August 29, 2025, this time genuinely free-falling into bankruptcy after notices of default from its largest aircraft lessor, with no DIP financing committed and no agreement to use cash collateral at the time of filing. The second case is the canonical recent example of a pure free-fall: the company did not have time to negotiate pre-petition support, did not source DIP financing in advance, and entered the case without the procedural pre-staging that supports prepacks or prearranged cases.

The contrast between the two Spirit filings illustrates how case type can shift dramatically based on circumstances. The first filing (4 months, prearranged with operational breathing room) accomplished a financial restructuring; the second filing (genuine free-fall, no pre-petition DIP) reflected the failure of the first case to address operational issues, with the Chapter 22 dynamic compounded by the absence of pre-petition preparation. The case is being closely watched as a 2026 reference point for how free-fall mechanics interact with the Chapter 22 phenomenon.

The choice among prepackaged, prearranged, and free-fall depends on several factors, with the strategic decision typically made during the pre-filing phase based on a clear-eyed assessment of the company's circumstances.

Stakeholder concentration

Prepackaged cases require near-unanimous support among each impaired class (typically 90%+ of the holders by both number and dollar amount). Concentrated capital structures (a small number of large institutional holders) support prepacks; dispersed capital structures (publicly registered bonds with thousands of small holders) typically cannot achieve the necessary pre-petition coordination and force the company toward prearranged or free-fall variants.

Urgency

Emergency liquidity situations or operational events (covenant default, supplier shutoffs, regulatory action) can force a free-fall filing because there is no time to negotiate pre-petition. Sustained distress with several months of liquidity remaining supports prepackaged or prearranged approaches because there is time to negotiate.

Complexity

Pure financial restructurings (debt rebalancing without operational changes or non-financial liability resolution) work well as prepacks. Cases involving operational restructuring (lease rejections, contract assumptions, asset sales), non-financial liabilities (mass torts, environmental claims, regulatory actions, pension obligations), or significant disputes among creditor classes typically require the post-petition tools of prearranged or free-fall variants.

Cost

Prepacks are typically the cheapest because the pre-petition work concentrates effort; prearranged cases have moderate costs; free-fall cases are the most expensive because the post-petition work requires sustained advisor engagement (the typical large free-fall case spends $50-150 million on advisor fees over 18-36 months). 2024 ABI data showed total advisor fees averaging roughly 4.8% of case size, up from 3.7% over the prior six-year period and under 3% in 2019-20. Specific 2024 reference points include Ducera Partners, financial advisor to the unsecured creditors committee in the Enviva case, charging a monthly advisory fee of $157,000 plus a $3.8 million success fee (Lazard served as Enviva's debtor-side investment banker), and the average blended hourly rate for debtors' lead counsel in large 2024 cases at $1,285 per hour. Counterintuitively, prepacks/pre-negotiated cases pass through Chapter 11 in roughly half the time of free-falls but produce only modest total-fee savings, because the pre-petition work substitutes for (rather than eliminates) much of the post-petition work that would otherwise occur.

Certainty

Prepacks have the highest certainty because the deal is locked before filing; prearranged cases have intermediate certainty; free-fall cases have the lowest certainty because the deal must be negotiated and confirmed during the case. For situations where the participating coalition wants to lock in specific economics (large recovery enhancements for the participating class, equity ownership of the reorganized entity, specific governance protections), the prepack approach delivers the strongest commitment.

Each approach has characteristic failure modes that experienced restructuring bankers monitor closely.

Prepacks fail

When an unexpectedly large minority class declines to support the plan during pre-petition solicitation, when a holdout creditor files a motion to convert or dismiss the case at the first-day hearing, when the U.S. Trustee objects to the disclosure adequacy of the prepetition solicitation materials, or when the bankruptcy court applies more skepticism to the rapid timeline than the parties anticipated. The Chapter 22 phenomenon (companies refiling within five years of an earlier emergence) is also a structural risk: roughly one in five publicly traded prepacks ends up filing again within a few years, suggesting that the speed advantage sometimes comes at the cost of insufficient operational restructuring.

Prearranged cases break down

When post-petition discovery uncovers material facts that change the recovery analysis (forcing renegotiation), when the UCC develops a substantive disagreement with the RSA terms and produces a competing plan, or when an adversary proceeding (preference, fraudulent transfer, or fraud claim) develops between key creditor groups that disrupts the consensual framework. The Cyxtera case (filed June 2023, confirmed November 17, 2023, emerged January 12, 2024 - 217 days) illustrates a longer prearranged path partly driven by post-petition operational restructuring of the data center colocation portfolio.

Free-fall cases break down

In many ways: missed DIP milestones forcing conversion to Chapter 7 or Section 363 sale; valuation disputes between secured creditors and the equity-holding ad hoc group that block plan confirmation; competing plans filed by creditor groups under Section 1121(c) once exclusivity terminates; appellate reversals of confirmation orders (Serta-style); or sustained operational deterioration during the case that erodes the value the plan was supposed to distribute. Free-fall cases require the most sustained creditor management work and have the widest range of outcomes.

The choice among the three Chapter 11 approaches is one of the foundational strategic decisions in restructuring practice. The decision typically gets made during the early diagnostic phase of pre-filing work, with the choice driving the rest of the case strategy: a prepack approach concentrates work pre-petition; a prearranged approach splits work between pre- and post-petition; a free-fall approach concentrates work post-petition. Understanding the trade-offs and recent precedents in each variant is essential for any restructuring banker working with companies considering bankruptcy.