The troubled Mid Staffordshire NHS Foundation Trust could be put into administration to "safeguard services for local patients", according to health officials.
Health regulator Monitor has started procedures to place the scandal-hit hospital group into administration following recommendations from health planning experts.
Other bodies and health secretary Jeremy Hunt will need to be consulted before the process can begin. If the plans go through, it will be the first time an NHS foundation trust has been put into administration.
A recent report into the hospitals under the trust found there was "serious failures" at every level at one in particular - the Stafford Hospital. The £13m report by Robert Francis QC followed a separate review by the Healthcare Commission report which revealed that up to 1,200 people died needlessly at the hospital between 2005 and 2009.
Monitor said that the trust was not clinically or financially sustainable in its current form. The regulator had previously highlighted the fact that it would need to cut seven percent of its yearly budget just to break even.
David Bennett, the chief executive of Monitor, said: "We are now consulting on whether to appoint trust special administrators with the expertise to reorganise services in a way which is clinically robust and sustainable.
"Their priority will be to make sure that patients can continue to access the services that they need and they will work with the local community to do this.
"Taking into account the consultation process, it would be several weeks before trust special administrators were in place."
NHS chief executive Sir David Nicholson has reiterated that he will not resign over the Mid Staffordshire scandal.
Nicholson, who oversaw the running of the hospital during the crisis, apologised to patients' families but said he would not resign.
An NHS Board meeting passed a vote of confidence in Nicholson after he attended a hearing today (Thursday).