Bankruptcy filings for January 2010 are up 15% from January 2009. There were a total of 102,600 bankruptcy filings in January 2010 as compared to 89,000 in January 2009. Overall in 2009 there were a total of 1,434,600 bankruptcy cases filed. These figures are approaching the record set in 2005 when over 1,600,000 cases were filed. Bankruptcy filings in 2010 are expected to increase throughout the year and eclipse last year’s total filings. Total filing numbers are taken from, “The Bankruptcy Database Project at Harvard (http://bdp.law.harvard.edu) in cooperation with Automated Access to Court Electronic Records (AACER).
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With the commercial real estate market in a continued pattern of free fall, coupled with the still-lagging economy overall, creditors are likely to see a continued increase in overall bankruptcy filings for the foreseeable future. For every strip mall or office park that watches as long-time, valued tenants vacate their spaces, there are landlords who cannot service the debt on their property due to an overall decrease in rental income, and there are small business owners now joining the ranks of the newly-unemployed, along with their employees.
The unfortunate trickle down sees both employees and small business owners seeking bankruptcy protection, along with a growing number of commercial property owners who are unable to find replacement tenants to make up the shortfall in rental income.
Additionally, those tenants remaining behind may see a lag in business as a result of the loss of “anchor stores” which attracted casual shoppers to the area. This point was driven home by the recent Chapter 11 filing by Movie Gallery, Inc., the operator of the Hollywood Video chain. Preliminary indications are that a “significant number” of Hollywood Video stores will be shuttered in the coming months, leaving hundreds of strip malls across the country without a valued tenant.
The Bankruptcy Department at Weltman, Weinberg & Reis will continue to monitor trends in bankruptcy filings and will update you as data becomes available.
While they became stronger in 2009 (yes they became stronger), the financial institutions were more willing to write off the bad debts of companies and were less likely to restructure debts when companies became delinquent. The result became a substantial increase in business bankruptcy filings in 2009. The number of businesses filing for bankruptcy in 2009 increased by 38% from the numbers reported in 2008(1).
The other factor that contributed to the substantial increase in business bankruptcy filings is the economy. With the high costs of gas, materials and food coupled with low consumer turnout in the marketplace, businesses’ profit margins were unable to meet the demands of the companies’ debts.
Along with the increase in business bankruptcy filings in 2009, companies’ default rates hit a record high in 2009(2). While some experts predict that the growth of business bankruptcies will taper off in 2010, the majority of experts think otherwise. Such factors as being unable to find financing, being unable to instill consumer confidence due to high unemployment and foreclosures and being unable to handle defaults in the commercial real estate industry, means that a slowdown in business bankruptcy filings is unlikely. The industries that are most suspect to seeing business bankruptcy filings are retail, media, commercial real estate and transportation.
With the increase number on business bankruptcy filings, creditors need to monitor accounts closer. The following are some general tips to make sure you are on top of the situation.
Tips for Chapter 11 Creditors with Claim:
- Have a game plan on what you as a lender want from the company. What will yield the best return for you- liquidation or being patience to see if the company will become viable
- If you have a first lien on all the business assets, you will need to seek attorney representation to begin negotiations with the debtor in possession(3). Many times these negotiations may take place prior to the filing. The most important items as a first lien holder are to protect your first lien position post bankruptcy filing as well as receiving adequate protection payments while waiting for the Chapter 11 Plan to be confirmed. Look out for a Motion to Use Cash Collateral, which generally is one of the first motions filed after a bankruptcy petition
- All creditors holding a secured claim need to make sure that the Debtor in Possession does not attempt to modify the loan contrary to bankruptcy law. Consult an attorney if you do not agree with any treatment of your claim. Look out for Disclosure Statements, Chapter 11 Plans or any Motions that might affect your claim (Motion to Sell Property, Motion to Avoid Lien)
- File your Proof of Claim
- Be on the Creditor’s Committee, if applicable
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(1)Information pulled from Automated Access to Court Electronic Records (AACER)
(2)Information pulled from Standard & Poor’s
(3)Debtor in Possession is a technical term used in bankruptcy. In essence, the Debtor in Possession is the debtor
This year in the United States we have seen Bankruptcy filings increase almost 34% from 2008. However, some good news may be on the horizon in some jurisdictions. After posting a 65% increase in September of 2009, compared to case files in September of 2008, the Northern District of Ohio saw a decrease in October. In October 2009, bankruptcy filings decreased by 1% as compared to October of 2008. One month does not make a trend but we may be seeing some stabilization in this jurisdiction.
In addition, some reports have indicated that there has been a slow down in the number of commercial bankruptcies filed nationally. Some are attributing this to the slowdown in commercial lending. The number of large Chapter 11 cases has slowed as well.
The rest of the year will be a sign of what is to occur in 2010. Weltman, Weinberg and Reis will continue to monitor the latest bankruptcy trends and its potential effect on creditors.
The number of Bankruptcy filings through the first half of the year has increased almost 37%. Business bankruptcy filings have increased in the first six months almost 110%. Over 1.5 million bankruptcies being filed this year could be a reality. Things are also heating up again in Congress. The proposed cram down legislation, which was put on hold, is once again starting to gain some momentum.
As the unemployment rate, the number of foreclosures and the overall cost of living continue to rise, the number of bankruptcy cases will as well. There could be new legislation or case interpretations, and Creditors need to be aware of the ever-changing playing field. Through our Trendline articles as well as our Bankruptcy Blog, which is updated regularly at http://wwrbankruptcy.com, the Bankruptcy Team at WWR will keep you updated and provide strategies that allow our clients to be in a position to best handle their bankrupt portfolios and mitigate their losses.
As children all over the country will be going back to school, they wonder what the new school year will bring. From a Creditor standpoint, we know what we will be facing … a challenge. We will be dealing with an increased number of bankruptcy cases.