New chapter for bankruptcies: They're down
State business filings dropped in 2010 for first time since before Great Recession
After years of rising business bankruptcies in Maryland, the number tailed off in 2010, according to federal figures.
Some 814 companies filed for bankruptcy in Maryland's federal bankruptcy courts last year, down 10 percent from 2009. Nationally, business bankruptcies fell by 7.5 percent last year.
The rebounding economy likely has a lot to do with that fall-off, economists and bankruptcy lawyers say. But there are other factors.
"Business owners are realizing that they do not need to file bankruptcy to close their businesses," said Laura J. Margulies, managing partner of Laura Margulies & Associates, a law firm with offices in Rockville and Greenbelt that handles small-business and consumer bankruptcy cases. She is a frequent lecturer on bankruptcy topics and a member of the Maryland State Bar Association's consumer bankruptcy executive committee.
"They just close their doors, and if they owe money to creditors and the creditors sue the business, [the creditors] will get a judgment against a worthless entity," Margulies said.
A stronger economy is helping to slow business bankruptcies, said Reza Barazesh, a senior vice president for Atlanta credit reporting agency Equifax.
"Recent developments suggest that the landscape for small businesses will be more stable in the future," he said.
Recent bankruptcy filings in Maryland include several in the construction industry, such as Beltsville roofing contractor Drizone and Upper Marlboro electrical contractor CCL Powers.
Patrick Donoho, president of the Maryland Retailers Association, said he hasn't heard of many retail bankruptcies so far this year. In recent years, numerous retailers have filed, including Beltsville chain Ritz Camera and Mattress Discounters of Upper Marlboro.
"But I still see a lot of empty storefronts in Annapolis," Donoho said. "Our industry is still struggling."
Borders Group of Ann Arbor, Mich., probably has been the biggest retailer to file for Chapter 11 bankruptcy protection this year. The bookstore chain plans to close three Maryland stores in Bowie, North Bethesda and Largo among 200 across the nation by April 30.
The reorganization will allow Borders to obtain "a proper infusion of capital" and "reposition itself to be a successful business for the long term," Mike Edwards, Borders Group president, said in a statement.
Margulies said she isn't seeing as many construction company bankruptcies these days, as many of those having financial trouble have already gone out of business.
Besides fewer overall filings in Maryland, fewer businesses have been filing for Chapter 7 liquidation. Last year, 584 businesses took that route, down 15 percent from 2009. In 2010, about 72 percent of businesses declaring bankruptcy filed for Chapter 7, down from 77 percent in 2009.
The pace of Chapter 11 reorganizations grew slightly last year but more slowly than in the previous three years. Even though the number of business bankruptcies fell off in Maryland last year, the total of 814 was still much higher than in pre-Great Recession years: 280 in 2006 and 352 in 2007.