Maryland Business Bankruptcy
If your business needs to file for bankruptcy in Maryland, you’ll go to one court in one of two places, Baltimore or Greenbelt. If it’s a corporation or LLC, you’ll need a lawyer, and there’s a filing fee (which differs with the type of bankruptcy). Your type of business will determine which kind of bankruptcy you file for, and some types of property are protected by law from creditors.
The U.S. Bankruptcy Court for the District of Maryland
The U.S. Bankruptcy Court for the District of Maryland has two divisions, Baltimore and Greenbelt. This federal court is where you file for bankruptcy, no matter where you live in Maryland. Each division is under the same court, but in two locations: 101 West Lombard St., Baltimore and 6500 Cherrywood Ln., Greenbelt.
A corporation may only file through an attorney licensed to practice before the U.S. District Court for the District of Maryland. If a corporation does not have an attorney, its petition may be dismissed without a hearing.
A Chapter of the U.S. Bankruptcy Code
You’ll choose a chapter of the U.S. Bankruptcy Code to file in, which dictates how your assets are dealt with, and determines when and how much creditors must be paid. Which one works for you depends on what the business is, the amount of debt and assets, and the expectations for what’s next.
Chapter 11: This chapter allows the company to continue to operate while it reorganizes itself financially. The company files a plan of reorganization, which is approved and enforced by the courts. Smaller companies can use Subchapter V of Chapter 11. It’s designed for companies with no more than $3,424,000 in qualifying debts. A plan of reorganization under Subchapter V of Chapter 11 can be filed only by the business. It must be done within 90 days of the order for relief, unless the deadline’s extended because of circumstances beyond the debtor’s control.
The company acts as debtor in possession and files its own schedules and statement of financial affairs. A plan of reorganization is submitted to the court. Creditors vote on the plan. The court confirms the plan. The company starts to fulfill the plan.
Chapter 7: A Chapter 7 is sometimes referred to as a liquidation. A trustee is appointed to liquidate the business’s nonexempt property. The proceeds are then distributed to creditors. Unlike a Chapter 11 case, a Chapter 7 case does not allow a debtor to continue to operate a business. While individuals get a discharge of their debts at the end of a Chapter 7 bankruptcy, corporations and partnerships never do. Once a company’s assets are liquidated under Chapter 7, it ceases to exist.
The trustee holds a meeting, usually scheduled for sometime between 30 and 40 days from filing. The meeting is called a “341 meeting.” Once the trustee files a final report and covers any other problems that have cropped up, the case can close.
Chapter 13: Businesses that are sole proprietorships and operate as an individual can use Chapter 13. Chapter 13 is a repayment plan that allows you to keep your property by making monthly payments to your creditors over three to five years. If your unsecured debts reach $526,700, you can’t file in that chapter. The first Chapter 13 plan payment is due to the trustee within 30 days of filing the case. The next payments are due every 30 days after that, with the amount to be paid and time to pay it calculated for the specific case. If you miss any of the payments, the court can dismiss the case. When you’ve made all your payments, you will receive a discharge from the court.
The Cost of Filing
When you begin filing, the type of bankruptcy you choose determines the cost of filing. If you want to file a Chapter 11, it’s $1,738; Chapter 7 costs $338. For a Chapter 13 filing, it’s $313.
When it comes to protecting property, a sole proprietorship is not separate from the person who owns it. Although you can claim exemptions for certain property, there are limits on what can be claimed. In Maryland, an individual can exempt from bankruptcy the tools and equipment of their trade up to $5,000, and also any property or cash up to $6,000. If the business is a sole proprietorship, those bankruptcy exemptions apply.
When a petition to file is prepared, it includes a list of everything the filer owns and who they owe. It has to have a detailed record of money that’s moved in the last several years. A bankruptcy filing puts an automatic stay in place, which bars creditors from trying to collect from the debtor or their assets.
If you are considering bankruptcy for a corporation, timing is key. Filing a bankruptcy and filing it at the right moment can protect you from having creditors confiscate your stuff. The more detailed information you can get to your lawyer when you decide to file, the better the process and the outcome. A lawyer can help you determine if liquidating is better financially than trying to file a Chapter 11 bankruptcy reorganization.