Chapter 11 of the Bankruptcy Code generally provides for reorganization—usually of a corporation or partnership. A chapter 11 debtor (bankrupt entity) usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in a chapter 11 bankruptcy filing.
In Maryland, as in all states, Chapter 11 of the Federal Bankruptcy Code allows for the reorganization of a debtor's business affairs, debts, and assets. This provision is typically used by corporations and partnerships, but it is also available to individuals and sole proprietors who meet certain criteria. Under Chapter 11, a debtor, also known as the bankrupt entity, proposes a plan of reorganization to maintain business operations while repaying creditors over a period of time. The process involves negotiation with creditors to alter the terms of debts, such as by reducing the amounts owed or extending repayment terms. The goal is to restructure the business's finances so it can return to profitability. The plan must be approved by the bankruptcy court. While federal law governs the process of filing for Chapter 11 bankruptcy, local state rules, including those in Maryland, can affect the administration of the bankruptcy case, such as exemptions and court procedures.