By Sara Randazzo and Damian Paletta 

One of the nation's largest Social-Security disability firms is preparing for a possible Chapter 11 bankruptcy filing as soon as next week, people familiar with the matter said, as it faces roughly $40 million in debt and shrinking demand for its services amid tightening government scrutiny of claims.

Binder & Binder, founded by brothers Harry and Charles Binder, is working with law firm Lowenstein Sandler and turnaround firm Development Specialists Inc. to prepare a Chapter-11 filing, one of the people said.

The firm, which is dependent on government-paid fees earned from shepherding Social Security disability claimants through the system, owes around $23 million to lenders U.S. Bank and Capital One Bank, one of the people familiar with the matter said. The firm owes about another $16 million in unsecured debt to D.E. Shaw-spinoff Stellus Capital Management, that person said.

Binder executives couldn't be reached for comment on Friday. U.S. Bank declined to comment, while representatives for Capital One, Stellus and Binder's private equity backer, H.I.G. Capital, didn't return requests for comment.

Chapter 11 protection from creditors would be used to help Binder restructure debt and close some far-flung offices, the people familiar with the matter said. The filing isn't expected to affect the majority of the firm's nearly 1,000 employees, many of them nonlawyers, or its 57,000 active cases, the people said.

Binder rose in prominence over the past several years as a combination of an aging workforce, high unemployment, and lax oversight fueled the rapid growth of the Social Security Disability Insurance program.

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