Forbes writer Hannah Clark predicts a bankruptcy boom is coming. She says a lack of due diligence by lenders is creating an environment where companies can easily borrow cash without proving they will be able to survive in the long run. Some of these companies are simply using the borrowed cash to pay vendors and creditors in the short term without considering changes they should make to survive in a variable economy.
Financial experts say that some of the businesses that are taking on additional leverage will not necessarily be better off and will be surprised if and when they go to file bankruptcy. The 2005 bankruptcy law change not only changed individual bankruptcy filing requirements but also changed business bankruptcy filing requirements. Companies are now required to pay vendors and utilities, and they are required to pay outstanding taxes in five years as opposed to the previously required six years.
Less than 28,000 businesses filed for bankruptcy in the year ending September 30, 2006 compared to over 34,000 in 2005 and 39,000 in 2002 during the "dot.com bust". Restructuring experts expect a correction of corporate bankruptcy rates in 2007.
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