9 Benefits of Filing Chapter 11 Bankruptcy in Maryland

9 Benefits of Filing Chapter 11 Bankruptcy in Maryland

If you or your business are facing overwhelming debt, you may have considered filing for Chapter 11 bankruptcy. Often, people think that bankruptcy signifies failure. But this is not the case. Both businesses and individuals can utilize Chapter 11 because of the tremendous benefits of filing Chapter 11 bankruptcy in Maryland.

In this article, we will explore 9 key benefits of filing Chapter 11 bankruptcy in Maryland, offering hope and insight into how this process can provide a fresh opportunity for financial success.

Understanding Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a legal process designed to help you or your business reorganize debt. The primary goal is to help both businesses and individuals restructure their finances to suit their unique situations. Chapter 11 is not just for large corporations; it’s also accessible to small businesses and individuals.

For businesses, Chapter 11 provides a way to stay operational while reorganizing debt. It gives you additional rights to negotiate terms with creditors, suppliers, and landlords to repay debts over a period of time.

Individuals can also file for Chapter 11. This is particularly relevant for those with debts too large for Chapter 13 bankruptcy. Chapter 11 offers a structured path for individuals to regain financial stability.

9 Critical Benefits of Filing Chapter 11 Bankruptcy in Maryland

Chapter 11 bankruptcy offers a pathway to regain control of your financial situation, both for individuals and businesses. Let’s explore 9 ways that this legal process can provide a structured approach to overcoming debt and achieving long-term financial stability.

1. The Automatic Stay Halts All Creditor Actions

When you file for bankruptcy, an ‘automatic stay’ is triggered, which stops all creditor collection actions. Here’s what it means for you:

  • Halting Collection Efforts: Creditors must cease their collection activities immediately. This includes phone calls, letters, or any other forms of direct communication demanding payment.
  • Stopping Lawsuits and Foreclosures: Any ongoing lawsuits or foreclosure proceedings against you are put on hold. Creditors cannot initiate or continue with legal actions related to debt collection.
  • Breathing Room: The automatic stay gives you the time to reorganize your finances without the pressure of imminent creditor actions. You get the space to strategically plan your financial future, negotiate with creditors, and propose a plan of reorganization.

The automatic stay is a key advantage of filing for Chapter 11 bankruptcy, providing a much-needed respite as you work towards regaining financial stability.

2. You Can Operate Your Business During the Bankruptcy Process

Chapter 11 is a powerful tool for businesses that can become profitable again. Unlike filing Chapter 7 bankruptcy, which means the liquidation of your business, Chapter 11 allows your business to remain operational while you navigate the bankruptcy proceedings and beyond.

  • You can maintain your day-to-day business activities, keep your doors open, and continue offering your services.
  • You can maintain ongoing revenue, which is essential for a business’s survival and a successful reorganization.
  • You can retain employees, maintaining business operations and morale during this difficult period.

Filing for Chapter 11 for your business and developing an actionable reorganization plan can allow your business to emerge profitable again.

3. Develop a Plan of Reorganization

At the core of Chapter 11 bankruptcy is the reorganization plan. This plan is a detailed, customized roadmap designed to address your specific financial circumstances. It involves a few clear steps:

  • Debt Restructuring: You’ll propose new terms to repay creditors. This might entail extending payment periods, adjusting interest rates, and changing other loan terms.
  • Improving Business Operations: You’ll outline how you plan to make your business more efficient and profitable.
  • Handling Assets: You’ll decide whether to keep, sell, or relinquish assets to manage debts more effectively.

Another crucial part of this process is negotiating with creditors. Negotiating is all about finding a balance that works both for your business and your creditors.

Finally, the court has to approve your plan. They’ll ensure it’s feasible, fair to creditors, and follows Chapter 11 bankruptcy laws. Once it gets the green light, the plan becomes binding on your creditors, and your roadmap for financial recovery is in place.

4. Treatment of Unexpired Leases and Executory Contracts

In Chapter 11 bankruptcy, you’re presented with a significant opportunity regarding unexpired leases and executory contracts. These are two-way agreements you’re currently engaged in but have not yet completed. During the bankruptcy process, you can address these contracts in a unique way. Here’s how:

Renegotiating Terms

You may have the option to renegotiate the terms of these contracts and leases. This can mean lowering rent payments, extending deadlines, or modifying service agreements to better suit your current financial situation. However, any amounts you owe before you file will be treated as the lower priority of debt.

Rejecting Contracts

If certain contracts or leases are no longer beneficial or sustainable, you may have the right to reject them. This decision can lead to a reduction in ongoing financial obligations, freeing up business resources.

By addressing your contracts strategically, you position your business for a more sustainable financial future.

Assuming Contracts

Assuming contracts enables businesses to selectively maintain contracts or leases that support their restructuring goals. By assuming certain agreements, your company affirms its commitment to these contracts, ensuring they remain in effect–and contribute positively to the restructuring process.

5. You Can Sell Assets Free From Liens

In Chapter 11 bankruptcy, you can sell your property free from liens and other interests. This means you can sell your assets without the barriers that may lower their value or complicate the sales process. Here’s what this means for you:

Clearing Liens

When you sell property during Chapter 11 proceedings, you can do so without the liens that are ordinarily attached to them.  This makes it much easier to sell the property because the lien attaches to the proceeds of the sale, allowing a purchaser to take the title free and clear.

Maximizing Asset Value

Freeing your assets from liens often increases their market value. This means that when you sell these assets, they may bring in more funds. These funds are crucial for debt repayment and can be instrumental in the restructuring of your business.

6. You Can Obtain New Financing

When you file Chapter 11, you’re not just managing debts. You’re also presented with the opportunity to obtain new financing.

Access to Post-Petition Financing

When you file Chapter 11, you can gain access to post-petition financing. This may come with more favorable terms than pre-bankruptcy options:

  • Lower interest rates
  • Extended repayment terms
  • More flexible terms

For example, imagine a retail business in Maryland struggling with high-interest debt. After filing for Chapter 11, they may be able to secure a post-petition loan with a significantly lower interest rate and a repayment plan that aligns with their projected cash flows.

Debtor-in-Possession (DIP) Financing

Debtor-in-Possession (DIP) financing is a special type of financial aid available to companies undergoing Chapter 11 bankruptcy. It allows a business to secure new funding while under the protection of bankruptcy proceedings.

DIP financing is unique because your company can borrow money while keeping control of its assets, unlike typical loans where assets might be used as collateral. DIP financing can provide essential capital to continue business operations, pay employees, and manage debts, which makes for a smoother transition through the reorganization period.

7. Opportunity to Reassess and Restructure

Filing for Chapter 11 bankruptcy opens a unique window for strategic reassessment and restructuring of your business operations or personal finances. This is a chance to take a step back and thoroughly evaluate every aspect of your financial situation.

For businesses, this means looking at operations and management with a critical eye. You can identify areas to cut costs, streamline operations, and increase profitability.

For individuals, it’s a time to reassess your spending, investments, and debt management. You get to develop a plan that addresses your current financial challenges and sets you up for long-term stability.

The restructuring process under Chapter 11 is not just about surviving the present; it’s about building a foundation for sustainable financial health.

8.  You Retain Control Over Assets and Operations

One of the distinct benefits of filing Chapter 11 bankruptcy in Maryland is the role you play as a ‘debtor-in-Possession.’ Essentially, you retain control over your business assets and operations throughout the bankruptcy process.

Unlike some other bankruptcy chapters where a trustee is appointed to perform many of the administrative functions, you continue to run your business in Chapter 11. This is a significant advantage because it allows you to:

  • Make critical business decisions without external interference.
  • Maintain a hands-on approach to managing your assets.
  • Steer the course of your financial reorganization based on your understanding of your business or personal finances.

This autonomy enables you to guide the restructuring process in a way that aligns with your long-term vision and goals.

9. Discharge of Certain Debts and Cramdown

Another one of the major benefits of filing Chapter 11 bankruptcy in Maryland is the possibility of discharging certain debts by cramming down and paying certain classes of creditors much less. This means that at a point in the case, some of your debts could be completely wiped out.

Not all debts are dischargeable, but many may be. Dischargeable debt may include unsecured debts like credit card balances or certain business loans. The idea is to free you from overwhelming financial burdens that are unmanageable under your current circumstances.

Key Takeaways

  • Chapter 11 bankruptcy allows businesses and individuals to reorganize debt.
  • The automatic stay halts creditor actions, providing time to restructure finances.
  • Businesses can continue operating, maintaining revenue and stability.
  • You create a tailored reorganization plan, giving you a chance to realign your finances and operations.
  • Potential access to new financing, including Debtor-in-Possession (DIP) financing.
  • Chapter 11 offers a chance for strategic planning and long-term financial health.
  • Debtors retain control over assets and business operations.
  • Potential for discharge and cramdown of certain debts, providing long-term financial relief.

Facing Overwhelming Debt? Speak to a Bankruptcy Attorney

Navigating the complexities of debt and bankruptcy can be daunting. Don’t face it alone.

The experienced team at Steiner Law Group specializes in guiding individuals and business owners through the Chapter 11 process. Ready for a fresh start? Contact Steiner Law Group today and take the first step towards financial freedom or call us at (410) 670-7060.

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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.