When to File Business Bankruptcy in Maryland: 6 Key Signs

Running a business is challenging, and sometimes, despite owners’ best efforts, companies face insurmountable financial obstacles. If your company’s debts are mounting and creditor pressure is intensifying, you may wonder when to file business bankruptcy in Maryland.

Business bankruptcy may seem daunting. But it can give you a structured approach to address your business debt-either by restructuring your business or shutting down your company in an orderly manner. Filing for business bankruptcy can help you gain some control over the course of your business’s destiny.

In this article, we will delve into the 6 signs that signal when to file business bankruptcy in Maryland and 6 reasons why you should not wait until late in the process to file. The sooner you file, the more control and options you have over your company’s future.

What is Business Bankruptcy in Maryland?

Business bankruptcy refers to a complex legal process that your business can use to manage debts. Business bankruptcy allows businesses to either shut down or repay debts under the supervision of the Bankruptcy Court. There are essentially 2 types of business bankruptcy:

Chapter 7: ‘Liquidation bankruptcy‘ involves selling off company assets to repay creditors. A court-appointed trustee manages this process, ensuring that assets are sold, and the proceeds are distributed to the creditors.

Chapter 11: ‘Reorganization bankruptcy‘ allows businesses to restructure debt and formulate a plan to become profitable again while continuing operations.

When to File Business Bankruptcy in Maryland: 6 Signs to Look Out For

Recognizing the first signs of financial distress can be crucial in charting the direction of your business. Although bankruptcy is a scary thought, it can be a valuable strategic option to ensure the survival or orderly wind-down of your business.

Here are 6 critical indicators that Maryland-based business owners should keep on their radar:

1. Accumulating Debt

If your business is accumulating debt that it can’t pay, it may be time to consider filing for bankruptcy. Experiencing a steady rise in debt is worrying, especially when coupled with high-interest payments that keep increasing.

Accumulating debt puts your business in a dangerous financial position and makes it challenging to become debt-free.

2. Inability to Cover Monthly Expenses

If you find that, month after month, the bills are piling up without the means to address them, it’s a clear indication of deepening financial troubles.

3. Legal Actions Initiated by Creditors

When your creditors begin taking legal steps like lawsuits, collections (such as bank account garnishments), or enforcing liens, it’s more than just a red flag; it can cripple a business.

These actions can even reach a point where your customers are told to pay their invoices directly to your company’s creditors, bypassing your business entirely.

4. Decreasing Sales and Cash Flow Problems

A consistent decline in sales that causes cash flow issues is a significant indicator of business strain. This can push your company toward financial instability if it’s unable to meet monthly expenses and debt obligations.

5. Significant Asset Depreciation

If the value of your business’s core assets is rapidly deteriorating, this is not just a blow to the balance sheet but a potential symptom of extensive financial troubles.

6. Limited Financing Options

When traditional financing doors start to close, and it becomes increasingly difficult to secure funds or credit extensions, it might be time to consider bankruptcy.

If any of these financial issues resonate with you, it’s probably time to consider filing for business bankruptcy. Don’t delay-taking action promptly can lead to a better result for your future and, potentially, your company’s future.

6 Consequences of Waiting Too Long to File

While you may hope for a change in circumstances or look for alternative solutions, delaying the inevitable can bring about serious-and avoidable-consequences. Let’s explore 6 repercussions of postponing a necessary bankruptcy filing:

1. Depletion of Resources

As the clock ticks, remaining financial resources (such as rainy day funds) can drain rapidly, pushing your business into further financial struggles. This can then limit your options for business recovery.

2. Escalation of Debt

Debt has a way of snowballing if not addressed in a timely manner. Holding off on a bankruptcy filing can worsen this problem, resulting in even larger debts with high interest and fees that become increasingly difficult to manage.

3. Legal Judgments and Asset Seizures

Postponing for too long can give creditors the time they need to pursue legal action. These legal actions can result in a judgment against your business, which can lead to the seizure of valuable assets.

4. Various Modes of Collection

When bankruptcy is seen as the last resort and pushed off, creditors might escalate their efforts, employing aggressive collection tactics. These tactics can interrupt the smooth operation of your business and add unnecessary stress.

5. Loss of Business Assets

Assets form the backbone of any business. When you delay a bankruptcy filing, your business risks losing valuable resources that might have otherwise been protected under bankruptcy laws.

6. Damage to Personal Credit

For many small business owners, personal finances are intricately tied to the business. If the business liabilities come with personal guarantees, a delayed bankruptcy can damage personal credit. This can even include collections directly against the business owner.

Why Do Businesses File for Bankruptcy? Benefits of Filing for Business Bankruptcy

Bankruptcy is a strategic tool-a means to either restructure or responsibly close a business. Here are some of the benefits of filing bankruptcy for your business.

• Automatic Stay: As soon as a business files for bankruptcy, an automatic stay is triggered. The Automatic Stay halts all ongoing collection efforts, freezing lawsuits, wage garnishments, and other aggressive creditor actions. This gives your business breathing room and prevents further financial hemorrhage.
• No Repayment Plan Requirement Under Chapter 7: For businesses that opt for Chapter 7 bankruptcy, there is no mandate to set up a repayment plan. This allows for a fairly quick resolution, in an orderly, court-supervised wind-down of a business.
• Trustee Handling Asset Liquidation and Distribution: In Chapter 7, a court-appointed trustee takes charge of liquidating the business’s non-exempt assets. This ensures a transparent, fair distribution of the proceeds among creditors and relieves you of much of the stress associated with the process.
• Repayment Plan in Chapter 11: If you choose Chapter 11, your business is given the opportunity to craft a tailored repayment plan. This often means reorganizing debt in a way that aligns with your business’s capacity to pay, giving your company a fighting chance to recover and thrive again.
• Skillful Trustees in Asset Discovery (Chapter 7): Experienced trustees excel at uncovering assets that might have been overlooked or undervalued. While this is uncommon, it can allow you to walk away with some cash in hand.

How a Business Bankruptcy Attorney Can Help

Navigating business bankruptcy is complicated, and it’s vital to speak with an experienced legal professional. They’re well-versed in bankruptcy laws and can ensure your business complies with all legal requirements. An attorney can help maximize protections and work towards optimal outcomes-such as restructuring under Chapter 11 or winding down under Chapter 7.

An experienced bankruptcy lawyer provides valuable advice, may negotiate favorable terms with creditors, and ensures all administrative requirements of Chapter 11 are met. Their guidance simplifies the bankruptcy process, helping you make strategic decisions for both immediate and future goals.

Contact Steiner Law Group

Steiner Law Group is experienced in helping businesses determine when to file business bankruptcy in Maryland. We are a business bankruptcy firm that has helped thousands of Maryland residents to discharge millions of dollars of debt.

We will guide you through the intricate process of compiling and filing all bankruptcy documentation, representing your interests in court, and safeguarding your rights during creditor negotiations.

From drafting reorganization plans and disclosure statements in Chapter 11 Bankruptcy to ensuring correct asset liquidation in Chapter 7, we cover all legal dimensions of your bankruptcy case. Our mission is to keep you thoroughly informed, ensuring your interests are prioritized.

If you need help with filing for business bankruptcy or have more questions about when to file business bankruptcy in Maryland, please schedule a free consultation or call us at 410.670.7060.