Navigating Chapter 11 Reorganization in Maryland

Navigating Chapter 11 Reorganization in Maryland

If you landed on this article, either your business is suffering but you want to keep it open or you are an individual grappling with substantial debt and you want a flexible solution. Chapter 11 Reorganization in Maryland may be an ideal solution.

Chapter 11 bankruptcy is a vital lifeline for businesses and individuals who find themselves drowning in overwhelming debt. It provides a platform to reorganize and renegotiate debt obligations, providing hope for recovery while ensuring the smooth continuation of your business or personal finances.

As we explore some of the intricacies of Chapter 11, our goal is to equip you with the knowledge to make informed decisions about your future and the future of your business. We’ll walk you through how Chapter 11 works, who can file, and the reorganization process.

What is Chapter 11 Business Bankruptcy?

Chapter 11 of the Bankruptcy Code, commonly known as “reorganization,” is a legal process that allows businesses and individuals to restructure debts. If you are filing Chapter 11 for your business, one of the key advantages is the ability to restructure business debts while continuing operations.

This process presents an opportunity for businesses to engage in negotiations with creditors, potentially reducing the amount of debt and/or extending repayment timelines. Reorganization is a tool that allows struggling businesses to regain stability and work towards achieving profitability.

Who Can File for Chapter 11?

Both businesses and individuals can file for Chapter 11 bankruptcy. However, the process varies slightly for each.

When businesses file for Chapter 11, it enables them to restructure their debts while maintaining their day-to-day operations. This can be crucial for a business’s long-term survival.

Individuals who file for Chapter 11 generally possess substantial assets and owe debts that surpass the limits of Chapter 13 bankruptcy. Utilizing Chapter 11 allows individuals to reorganize their finances while protecting their assets.

How Does Chapter 11 Reorganization in Maryland Work?

Now let’s explore the details of the Chapter 11 Reorganization process.

Necessary Documents and Forms

The success of all bankruptcy cases depends heavily on the accurate and timely submission of various essential forms and documents. Some of these include:

  • Voluntary petition
  • Property form
  • Property exemption form (for individuals only)
  • List of creditors who have claims secured by property
  • List of creditors who have claims unsecured by property
  • Income form (for individuals only)
  • Expenses sheet (for individuals only)
  • Summaryof everything you owe and own
  • Statement of financial affairs
  • Monthly operating reports
  • Chapter 11 plan of reorganization

These are just some of the necessary documents and forms you will need in order to file for Chapter 11. It is highly suggested that you work with a bankruptcy attorney in order to correctly complete and file these essential documents.

The Automatic Stay

Once a Chapter 11 petition is filed with the court, the ‘automatic stay‘ gets triggered. Once in effect, all collection activities, lawsuits, wage garnishments, and foreclosures are immediately halted.

The automatic stay remains in effect throughout the bankruptcy process, providing much-needed relief and the opportunity to create a thorough reorganization plan without worrying about debt collection efforts.

The Role and Importance of the Creditor Meeting

The creditor meeting, also known as the “341 Meeting” or “Meeting of Creditors,” is typically scheduled a few weeks following the bankruptcy filing.

The debtor–whether a business owner or an individual–is required to attend this meeting. During the 341 Meeting of Creditors, you will need to answer questions under oath about your financial condition (or your business’s financial condition) and the paperwork you filed with the court.

The 341 Meeting is an opportunity for the United States Trustee and your creditors to evaluate your ability to repay the debt and can provide a basis to challenge the reorganization plan, if necessary.

The Repayment Schedule

When going through the Chapter 11 Reorganization process, you will present a repayment plan to both creditors and the bankruptcy court. This plan will clearly outline how you intend to repay your debts within a specific timeframe.

It’s important to create a repayment plan that is realistic, taking into account your income and expenses. The success of the Chapter 11 process hinges on the successful execution of this repayment plan. Consulting an experienced bankruptcy attorney ensures that you create a realistic and feasible repayment schedule.

Debtor-in-Possession

Once bankruptcy is filed, you (or your business) becomes a “Debtor-in-Possession.” This means that you will retain possession and control of your assets while undergoing a reorganization.

As a debtor-in-possession, you can continue business operations (or personal spending) without the strict oversight of a Chapter 13 trustee, provided you comply with certain duties and responsibilities stipulated by the Bankruptcy Code.

Can Individuals File Chapter 11?

YES. The 2 primary reasons that individuals may file for Chapter 11 over Chapter 13 are:

  1. Flexibility
  2. Unlike Chapter 13, Chapter 11 has no debt ceiling

In Chapter 13 bankruptcy, you must be able to repay all of your debts over a 3-5 year window. With Chapter 11, however, you can propose a flexible reorganization plan more tailored to your financial situation. This plan might involve longer repayment terms or different arrangements with creditors.

Chapter 13 also has a debt ceiling of $2,750,000 for secured and unsecured debts combined. Chapter 11  has no debt ceiling. Your primary obligation is to adhere to the approved repayment plan and the other requirements of the Bankruptcy Code.

The Debtor’s Obligations in Chapter 11 Reorganization in Maryland

In Chapter 11 bankruptcy, debtors carry specific duties and obligations in order to complete their reorganization.

Filing Monthly Operating Reports (MORS)

As a debtor, one of your critical obligations is to submit Monthly Operating Reports (MORS). These reports must be filed monthly and provide a transparent overview of your financial activities and business operations.

Opening a Debtor-in-Possession (DIP) Bank Account

Another key obligation is opening a Debtor-in-Possession (DIP) bank account. The DIP account ensures that your funds, or your business’s funds, are kept separate from pre-bankruptcy assets and liabilities. This helps ensure clear financial management during the reorganization.

Make Sure All Collateral is Insured

Collateral insurance is non-negotiable. It protects both your interests and the interests of your creditors. This insurance provides coverage for collateral associated with secured debts–reducing the risk of losses or damages.

Filing Taxes on Time

During reorganization, it’s vital to stay on top of all tax obligations, both current and past. Promptly fulfilling these responsibilities ensures you remain in good standing with tax authorities.

Meeting Court Deadlines and Securing Approval for Transactions

You must adhere to all court-imposed deadlines. You will likely also need to obtain court approval for any significant financial transaction. This ensures transparency and fairness throughout the reorganization process.

Paying Quarterly US Trustee Fees

The US Trustee Program oversees the administration of bankruptcy cases. To fund this program, you’ll be obligated to make payments on a quarterly basis. The quarterly fee is determined based on the disbursed funds from the DIP account.

The Role of the United States Trustee

The U.S. Trustee is directly involved in the Chapter 11 cases, and serves to maintain system integrity and prevent fraud. Debtors must adhere to Maryland guidelines set by the U.S. Trustee’s office. Following these rules ensures a smoother and more transparent bankruptcy process.

The Chapter 11 Reorganization Plan

Formulation of the Plan

You have a 120-day exclusivity period after filing a bankruptcy petition to create a reorganization plan. During this time you have the exclusive rights to draft a reorganization plan and highlight your intended repayment methods.

Creditor Classes

In your plan, you can sort your creditors into specific classes based on the nature of their claims and how you propose to treat them. This categorization helps streamline negotiations and the repayment plan.

Liquidation Analysis

The liquidation analysis offers a glimpse into the potential outcome if the debtor opts for Chapter 7 bankruptcy. This comparative analysis emphasizes the advantages of pursuing Chapter 11 Reorganization in Maryland.

Disclosure Statement

The Disclosure Statement offers a summary of the circumstances that led to the Chapter 11 filing. The document also explains how the proposed reorganization plan can help bring the debtor to a state of financial stability.

Disclosure Statement Hearing

Once the disclosure statement has been approved by the Court at a hearing, the disclosure statement and Chapter 11 plan are distributed to all creditors. This step allows the creditors to carefully examine the documents and vote to either approve or reject the plan of reorganization.

Confirmation Hearing

Once the reorganization plan is voted on by the creditor classes, it is then presented to the bankruptcy court. The court’s role is to evaluate the plan’s fairness, feasibility, and whether it has been proposed in good faith and meets the requirements of the Bankruptcy Code.

Plan Implementation

After the court approves the reorganization plan, the debtor initiates the implementation process. This may include a range of actions, like restructuring business operations, selling assets, or renegotiating contracts–in order to start making payments according to their approved Chapter 11 payment schedule. 

Small Business Subchapter V

Subchapter V of the Bankruptcy Code is designed specifically for small businesses, aiming to streamline and simplify the Chapter 11 process.

One major distinction between Subchapter V and traditional Chapter 11 is the absence of a creditors’ committee unless the court deems it necessary, which can reduce costs and expedite the process.

Subchapter V also incorporates a more hands-on approach from a new Subchapter V trustee who is appointed to assist in formulating an agreed-upon reorganization plan. However, this plan needs to be submitted within 90 days of filing–more quickly than in a traditional Chapter 11.

Lastly, unlike other forms of Chapter 11, only the debtor can propose a reorganization plan, which eliminates competing plans. This unique face of Subchapter V ensures that small businesses have a more accessible, efficient, and cost-effective route to reorganize debts and continue operations.

Chapter 11 Versus Chapter 7

Chapter 11 focuses on debt reorganization, giving you the chance to restructure your business and keep it running. On the other hand, Chapter 7 is geared towards selling off your assets, leading to a court-supervised, orderly wind-down of your business.

The Chapter 11 process is longer and more complex than Chapter 7, which provides a quicker route but leads to the closure of your business.

If your objective is to navigate financial hardships and reorganize debts while keeping your business open, then Chapter 11 may be your solution.

If you intend to shut down your business and sell off assets, Chapter 7 would be the more suitable option.

How a Chapter 11 Bankruptcy Attorney Can Help

Navigating the intricacies of a Chapter 11 bankruptcy case can be overwhelming. If you are considering filing for Chapter 11, it’s essential to seek the assistance of a bankruptcy attorney who can provide guidance throughout the entire process. Here’s how a Chapter 11 attorney can help:

  • Legal Expertise: An experienced attorney will explain all the details of Chapter 11, ensuring that you understand all the nuances and how they apply to your case.
  • Strategic Advice: Chapter 11 involves more than just filling out paperwork. It requires decisions that can significantly impact your financial future. An attorney can offer guidance to help optimize your outcomes.
  • Negotiating with Creditors: An experienced attorney will negotiate terms with your creditors, striving for agreements that are fair and manageable for you.
  • Court Representation: Whether attending court hearings or meeting with creditors, having an attorney by your side ensures that your rights and interests are well represented during these proceedings.
  • Documentation and Deadlines: Your attorney will handle all paperwork, making sure everything is accurately completed based on the information you provide and submitted on time.

An experienced Chapter 11 bankruptcy attorney serves as more than your advisor; they become your strategic consultant and courtroom advocate throughout every phase of the reorganization process.

Why Work with Steiner Law Group?

Steiner Law Group has over a decade of experience in bankruptcy law and has assisted hundreds of Maryland residents in getting out of debt.

Our commitment goes beyond simple legal guidance; from the initial meeting to the final outcome of your case, we provide comprehensive assistance. You can trust that you won’t have to navigate the complexities of this challenging journey alone.

Contact Steiner Law Group

If you or your business is facing a financial crisis, you’re not alone. We can help. Steiner Law Group can provide the guidance and representation you need.Schedule a consultation today 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.