Hannah Senecal – A Rapid Reentry Into Bankruptcy
On August 29, 2025, Spirit Airlines (“Spirit”) filed for Chapter 11 bankruptcy in the Southern District of New York just five months after emerging from its previous restructuring. This increasingly common trend, called “Chapter 22,” refers to companies that file for Chapter 11 twice. Spirit’s swift return to bankruptcy raises serious concerns about the effectiveness of Chapter 11 as a long-term mechanism for corporate rehabilitation and underscores deeper structural flaws in how courts assess feasibility, protect creditors, and evaluate business plans.
Spirit’s First Restructuring
Earlier this year, Spirit announced its successful emergence from bankruptcy, highlighting reduced debt and new capital. Nearly $800 million in debt was equitized, and the airline secured $350 million in financing—measures the company claimed would position it to operate more effectively. Despite these efforts, Spirit quickly faltered, citing increased fuel costs, intensified competition, and a strained ultra-low-cost model. In announcing its second filing, Spirit acknowledged that a more comprehensive restructuring was necessary, including fleet optimization, network redesign, and additional cost-cutting measures.
The Feasibility Problem Under 11 U.S.C. § 1129(a)(11)
Spirit’s refiling exposes a core legal issue: whether courts are applying sufficient scrutiny to the Bankruptcy Code’s feasibility requirement. Under § 1129(a)(11), a reorganization plan cannot be confirmed unless it is “not likely to be followed by liquidation or the need for further financial reorganization.”
Although management’s projections serve as a starting point, bankruptcy courts must independently evaluate feasibility and cannot simply approve overly optimistic plans. The plan proponent bears the burden to prove feasibility by a preponderance of the evidence. Judges assess whether a proposed plan is workable by weighing competing expert testimony and examining the reliability of the projections, the reasonableness of the assumptions, and prevailing industry conditions.
Spirit’s rapid collapse suggests courts are not applying this standard rigorously enough in volatile industries like airlines. These industries operate on narrow margins and are highly susceptible to even minor disruptions or external shocks. Spirit’s refiling underscores the need for courts to scrutinize business assumptions in high-risk industries more strictly, using tools such as independent expert review, conservative downside-case modeling, and contingency plans. These safeguards would help prevent confirmation of plans that seem viable at first glance but lack the resilience to endure market pressures.
Creditors’ Dilemma in Chapter 22 Cases
The treatment of creditors in Chapter 22 cases also merits attention. Creditors who agreed to compromises in the first restructuring often find themselves in a weaker position the second time around. Many unsecured creditors reduced or restructured their claims in exchange for equity or longer repayment terms, only to see that equity devalued when the company filed again. In Spirit’s case, the company has emphasized that it intends to pay employees—who are typically given priority in bankruptcy—but these employees still face heightened risks of wage freezes, layoffs, and benefit reductions as the company seeks further cost savings. Meanwhile, unsecured creditors, who already took losses, now risk being crammed down again or wiped out entirely. This dynamic decreases creditor confidence and could discourage future lending to distressed companies.
Debtor-in-Possession Financing Challenges
Debtor-in-possession (DIP) financing, a critical feature of Chapter 11 under § 364, also becomes more complicated in repeat filings. DIP loans provide debtors liquidity to operate during bankruptcy and are often given “superpriority” status, meaning they take priority over existing creditors.
In Chapter 22 cases, however, lenders hesitate to extend this financing after seeing the failure of a prior restructuring. To offset the heightened risk, they often demand higher interest rates and enhanced oversight, which can strain the debtor’s already fragile cash flow. The willingness of lenders to fund Spirit’s second restructuring will signal how capital markets view Chapter 22 bankruptcies: a cautious response would reflect increased skepticism, while strong interest might suggest growing acceptance of repeat restructurings.
Chapter 11 as a Lifeline and its Limits
Spirit’s Chapter 22 underscores the limits of Chapter 11 as a tool for long-term survival, especially in volatile sectors like airlines. The industry has long been bankruptcy-prone: major carriers like United, Delta, and American previously used Chapter 11 to reduce debt and survive market downturns. These companies leveraged bankruptcy as a temporary shield while relying on their scale and efficiencies to remain competitive.
Spirit, by contrast, entered the market as a low-cost carrier, leaving itself little room for market shifts like increased prices and stark changes in travel demand. Without the scale and revenue of larger airlines, Spirit remains vulnerable to the same market pressures that contributed to its first restructuring. That vulnerability deepened when its planned merger with JetBlue failed—a deal that could have provided the resources Spirit needed to compete. Regulators blocked the merger on antitrust grounds, eliminating what was likely Spirit’s best chance at stability. The second filing reflects how corporate strategy, market forces, and regulatory constraints can converge to limit the effectiveness of Chapter 11 as a long-term solution.
The Need for Balance
Spirit’s case illustrates how Chapter 11 in its current form may not strike the right balance between flexibility in allowing companies to reorganize quickly and durability in ensuring those reorganizations are sustainable. If plans can be confirmed that collapse within months, stakeholders will question the legitimacy of the process. Spirit’s refiling highlights that while Chapter 22 can serve as a corrective measure, it also shows skepticism that bankruptcy courts allow debtors to exit proceedings too quickly without addressing core operational and financial weaknesses. Ultimately, the significance of Spirit’s second bankruptcy extends well beyond the airline industry. It raises fundamental questions about feasibility, creditor protection, and the purpose of reorganization. Spirit’s case shows how fragile turnaround strategies can be in competitive markets and how repeat filings are no longer rare. Their growing prevalence will shape the dialogue about corporate restructurings for years to come.
