Filing for Chapter 11 bankruptcy can help businesses reorganize their debts while continuing operations. This process involves several legal steps and requires careful planning to meet state and federal requirements.
Businesses must follow both federal bankruptcy laws and any applicable state regulations.
Preparing for the filing
Before filing, a business must assess its financial situation. This includes reviewing outstanding debts, assets, and revenue streams. A business should also determine whether Chapter 11 is the best option compared to alternatives like Chapter 7 liquidation. Once the business decides, financial records must be prepared for submission to the bankruptcy court.
Filing the petition
A Chapter 11 case begins with filing a petition in the appropriate U.S. Bankruptcy Court. Businesses can file voluntarily, or creditors can force them into bankruptcy through an involuntary petition. Along with the petition, the debtor must submit schedules of assets, liabilities, income, and expenses, as well as a statement of financial affairs.
Operating as a debtor-in-possession
After filing, the business continues operating as a “debtor-in-possession.” This means ownership remains with the existing management, but the court oversees major financial decisions. In Maryland, businesses must comply with both federal bankruptcy rules and state business regulations. Any significant asset sales, lease agreements, or loans require court approval.
Developing a reorganization plan
A key part of Chapter 11 is creating a plan to restructure debts. This plan outlines how the business will repay creditors over time. Creditors can vote on the plan, and the court must confirm it before implementation. Maryland businesses must ensure compliance with both the U.S. Bankruptcy Code and any applicable state-specific financial rules.
Completing the reorganization
Once the court confirms the plan, the business must follow the outlined repayment structure. Regular reports must be submitted to the court to demonstrate compliance. If the business successfully meets its obligations, it can exit Chapter 11 and continue operating without court oversight.
