Who Owns a Business if the Owner Files for Bankruptcy in Maryland?

Who Owns a Business if the Owner Files for Bankruptcy in Maryland?

Filing for business bankruptcy can feel overwhelming and complex. This predicament brings up a crucial, often confusing issue: who owns a business if the owner files for bankruptcy in Maryland?

Business bankruptcy is a taxing and emotional process, often stemming from unforeseen circumstances like a sudden market downturn or a major client defaulting on payments.

In this article, we will dive deeper into the question of who owns a business if the owner files for bankruptcy in Maryland and discuss what bankruptcy means for your business and how a business bankruptcy law firm, like Steiner Law Group, can help.

What is Business Bankruptcy?

Business bankruptcy is a complex legal procedure that a business may elect in order to address its debt. Depending on the type of bankruptcy filed, this process can lead to the dissolution of the business in Chapter 7 or a restructuring of its debts in Chapter 11 bankruptcy.

What Does Filing Bankruptcy Mean for My Business?

When you file for bankruptcy, it signifies a formal acknowledgment of your business’s financial distress and initiates a legal course of action to mitigate the effects of debt collection. Business owners’ bankruptcy options include liquidation (Chapter 7) or reorganization (Chapter 11), both of which are presided over by the Bankruptcy Court.

Once bankruptcy is filed, the ‘automatic stay‘ is triggered, which offers immediate respite by halting all collection activities. This gives your business breathing room so you can strategize about your next steps. However, the specific implications largely depend on the type of bankruptcy your business files-Chapter 7 or Chapter 11.

Chapter 7 bankruptcy leads to a complete cessation of operations, culminating in the orderly, court-supervised liquidation of your business’s assets. This process ensures an organized repayment process to creditors, instead of allowing individual creditors to seize business assets piecemeal. While a Chapter 7 bankruptcy effectively ends the business, Chapter 7 can provide closure and a fresh start for a business owner.

Chapter 11 bankruptcy allows you to restructure your business’s debts, allowing your business to continue operations while proposing a plan of reorganization to hopefully pay only a portion of its debts over a period of time. This is an often preferable option for businesses that see a viable future if the debt can be restructured.

Who Owns a Business if the Owner Files for Bankruptcy in Maryland?

The question of who owns a business if the owner files for bankruptcy hinges entirely on the type of bankruptcy pursued.

Who Owns a Business if the Owner Files for Chapter 7?

In the case of Chapter 7 bankruptcy, referred to as ‘liquidation bankruptcy’, a Chapter 7 trustee is appointed. The trustee has all of the rights that the business owner had, with additional rights under the U.S. Bankruptcy Code. All business assets become part of the Bankruptcy Estate and the owner can no longer access these assets, including cash in a bank account, accounts receivable, and equipment.

Acting as the stand-in for the business owner, the trustee has the ability to sell off business assets to pay back creditors, thus effectively leading to the cessation of the business’s operations and subsequent closure. As such, the owner loses control of the business and all associated assets.

Who Owns a Business if the Owner Files for Chapter 11?

Unlike Chapter 7, Chapter 11 bankruptcy, referred to as ‘reorganization’, allows existing owners to retain their ownership as a debtor-in-possession. However, this comes with its own set of requirements and obstacles. The business operations will come under court supervision and the business owner’s responsibilities will change.

If the Chapter 11 plan is confirmed, the owner must also adhere to the court-approved debt repayment plan. Despite these hurdles, the owner retains the ability to run the business, albeit with heightened scrutiny and a ‘fiduciary responsibility’ to their creditors.

How Does the Role of the Owner Change After Filing Chapter 11?

The transition to post-bankruptcy operations often triggers a significant shift in the owner’s role.

First, the owner must close all existing bank accounts and open a new ‘debtor-in-possession’ account. This account becomes the central hub for all business financial transactions, offering an enhanced level of transparency to the Court, United States Trustee, and creditors.

The post-bankruptcy operations also may necessitate court approval for various transactions. For instance, some routine business activities may require court permission. Some of these activities include:

  • Payroll processing;
  • Using cash collateral
  • Taking out new loans; or
  • Selling assets.

The business owner is also required to file Monthly Operating Reports (MORs), which provide a regular update on the business’s financial status to all involved parties.

If you want to sell real property, the Court must approve both the realtor and the offer. Lawyers, accountants, and similar professionals must also be court-approved. As the debtor-in-possession, you assume a fiduciary role to creditors. If these fiduciary responsibilities are not maintained, you may lose ownership of your business, as a Chapter 11 case can be converted to a Chapter 7 case, or the Court can appoint a Chapter 11 trustee.

However, this does not extend to every operational aspect; the owner maintains the authority to hire or fire employees, and to sometimes sell products or services without approval from the Court. The underlying goal of Chapter 11 is to keep the business’s main functions running smoothly, albeit with the need for court-approval for many back-end operations.

The loss of autonomy may seem disheartening, but it primarily serves to ensure transparency throughout the process. In essence, navigating through bankruptcy involves a delicate balance between preserving operational continuity and satisfying the Bankruptcy Code’s requirements of increased oversight and transparency.

Will I Lose My Business if I File for Bankruptcy?

If you file for Chapter 7 business bankruptcy, yes; you have chosen to liquidate the business in an orderly, court-overseen process. If you choose to file Chapter 11, however, you can continue operating the business. However, if you’re not able to reorganize your business’s debts, the case may be converted to a Chapter 7 case.

What Happens When a Small Business Files for Bankruptcy?

Bankruptcy proceedings can seem daunting for small business owners, but it’s important to understand that the process can provide an effective solution to manage overwhelming debt and pave the way for a fresh start.

The U.S. Bankruptcy Code offers a level playing field by providing multiple legal routes to handle debt regardless of a business’s size. Small and large businesses, whether structured as an LLC or corporation, can file for Chapter 7 or Chapter 11 bankruptcy.

How a Business Bankruptcy Attorney Can Help

An experienced business bankruptcy law firm, like Steiner Law Group, can be instrumental in guiding you through this complex process. They can help you understand the implications of the various chapters of bankruptcy, assist you in preparing necessary documentation, and represent your interests in court.

A skilled attorney can also provide strategic advice to mitigate potential losses and help you navigate your business toward the best possible outcome.

Remember, bankruptcy doesn’t necessarily signify the end. Often, it’s a chance for a fresh start, and an experienced business bankruptcy lawyer can help you take full advantage of that opportunity.

Contact Steiner Law Group

At Steiner Law Group, we are experienced in answering the question ‘who owns a business if the owner files for bankruptcy in Maryland?’ Our team has helped hundreds of Maryland residents to eliminate and restructure millions of dollars of debt. We will help you compile and submit all the necessary bankruptcy paperwork, represent you in court, and defend your rights when dealing with creditors.

Our team will handle all of your bankruptcy case’s legal aspects, from crafting the reorganization plan and disclosure statement in a Chapter 11 case, to ensuring that assets are sold properly in a Chapter 7 case. We will ensure that you are well-informed in your decisions and that your interests are upheld throughout the bankruptcy process.

If you need help with business bankruptcy or have more questions about the question ‘who owns a business if the owner files for bankruptcy in Maryland?’ please schedule a consultation or call us at 410.670.7060.


Can my bankruptcy trustee dissolve my business?

In Chapter 7 business bankruptcy, the court-appointed trustee has the authority to liquidate your business assets to repay creditors, effectively dissolving your business, but it’s crucial to differentiate between bankruptcy and dissolution.

While Chapter 7 bankruptcy refers to a legal mechanism to shut down a business, dissolution typically refers to the State law process of closing the business. Thus, while bankruptcy can potentially lead to dissolution, they are distinctly different concepts, and each has its own nuances.

Is there a difference in the process of filing bankruptcy for an LLC versus a corporation?

While the question might imply significant differences between bankruptcy procedures for Limited Liability Companies (LLCs) and corporations, the truth is, the disparities are not as pronounced as you might imagine. When it comes to bankruptcy, both LLCs and corporations can file under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code, following the same procedures. Any differences that do exist are generally tied to the distinct structures and operations of LLCs and corporations, rather than to the bankruptcy process itself.

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About Eric Steiner, Esquire

Mr. Steiner graduated from the University of Michigan Law School in 2006. Since then, he has focused his practice on bankruptcy, real estate, commercial and consumer collections, including representing the third largest lender in the greater Baltimore area.