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Thursday, November 19th, 2009

Middle-Class the New Face of Bankruptcy

The middle class is increasingly resorting to bankruptcy despite college education, home ownership and other historical signs of success, according to a new study.

While the middle class's investments in higher education and real estate have typically shielded them from the hardest economic storms, that is no longer the case.

"The Vulnerable Middle Class: Bankruptcy and Class Status," a new study by Elizabeth Warren, Harvard Law School Leo Gottlieb professor of law, and Deborah Thorne, Ohio University associate professor of sociology illustrates how bankruptcy demographics have changed in recent decades.

An exclusive preview of Warren and Thorne's new book by USA Today shows how bad mortgages, rising unemployment, and the trappings of success led millions of Americans into debt.

Warren and Thorne compared annual bankruptcy filings from 1991 through 2007, and saw an increasing trend of middle class Americans, dispelling the myth that bankruptcy was a tool for the destitute or extreme spenders.

The article profiles several bankruptcy filers, including a single mother who went from earning $275,000 a year to filing bankruptcy after starting her own business, as well as a couple nearing retirement whose dropping home value left them without a safety net.

The study's authors admit that much of the data comes from recent "boom" years, and ends at the same point the recent recession began.

They expect that looking back at the past two years—and likely into the future—will show an even greater upswing in middle class Americans turning to bankruptcy protection.

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Posted in Setting the Record Straight about Bankruptcy | 5 Comments »

Wednesday, November 11th, 2009

The Year of the Prepackaged Bankruptcy

2009 has seen a dramatic rise in so-called prepackaged bankruptcy filings that streamline the bankruptcy process for large companies, according to a recent report from Reuters.

Companies filing for traditional bankruptcy can find themselves going through several years of Chapter 11 bankruptcy filing, which can interrupt business and create uncertainty.

Instead, in a prepackaged bankruptcy, companies can agree upon and arrange reorganization plans with their creditors before actually filing for Chapter 11 bankruptcy. Creditors have sometimes even voted on the prepackaged plan before it is filed.

The prepackaged bankruptcy is a form of agreement that is even more accelerated than a pre-negotiated bankruptcy in which companies and creditors agree on some but not all stipulations of the plan.

Prepackaged Plans Increase 300 Percent

There have been 30 prepackaged bankruptcies this year, the Reuters report notes—a 300% increase from just 10 such arrangements in 2008. With 164 companies that have public equity and debt who have filed for Chapter 11, the prepackaged bankruptcies represent 18% of the total number filed.

The much-publicized CIT Group Inc bankruptcy was arranged with a prepackaged bankruptcy agreement, as were those of other troubled companies like Six Flags Inc, Charter Communications Inc, Panolam Industries International Inc and Lear Corp. According to Reuters, the 30 prepackaged bankruptcies in 2009 represent some $124 billion in assets.

Fast Filings in Prepackaged Bankruptcy

With the prepackaged bankruptcy, companies can turn around a Chapter 11 filing in a matter of months, even when dealing with a huge company like CIT and its $80 billion in assets, which expects approval of its bankruptcy filing in December, a mere month after filing.

The results are less uncertainty about what the terms of the bankruptcy will be, and less disruption of the business in question.

Six Flags Inc, the world’s largest regional theme park operator, filed for bankruptcy in mid-2009, and continues to negotiate a finalized plan. Robert Rossiter, the Chief Executive of Lear Corp., which makes automotive seats and electronics, recently said in a statement that Lear Corp. had moved through the financial restructuring process without missing a beat operationally.

According to Reuters, the traditional Chapter 11 filing, without a prepackaged bankruptcy, is now often referred to as a free fall.

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Posted in Bankruptcy News and Events | 3 Comments »

Tuesday, November 3rd, 2009

Commercial Bankruptcy Filings Jump 7% in October

On the heels of bad news for small businesses with the bankruptcy of CIT Group Inc. comes news from The Wall Street Journal that business bankruptcy filings rose 7% in October, after falling for several consecutive months.

A total 7,771 businesses filed for bankruptcy protection in October, up from the 7,271  in September. The increase continues a yearly trend of rising bankruptcies from the same time last year, despite what had been a drop in filings from month-to-month in August and September.

A report from the business information company Equifax Inc. suggests that, from the third quarter of 2008 to the third quarter of 2009, commercial bankruptcy filings among small businesses increased by 44%.

The Wall Street Journal cites the same tight credit market and decreases in consumer demand for products fueling the wider recession as continued causes for businesses going into bankruptcy.

Retail, Real Estate Hardest Hit

Retail businesses and real estate are the industries that continue to lead in bankruptcy filings. The impact of flagging success in these areas, however, can lead to a trickle-down effect with a much broader reach and negative financial impact on industries like home building and manufacturing, according to Georgia State University College of Law bankruptcy professor Jack Williams, who spoke to WSJ.

Bankruptcy filings are a lagging economic indicator so it's likely that we'll see bankruptcy filings increase for the next several quarters, Williams told the journal.

The bankruptcy of CIT Group Inc., one of the largest lenders to small- and medium-sized businesses, will only serve to tighten credit markets, many believe, in an already troubling environment for small businesses. CIT finances a wide array of businesses, from retail operations like Dunkin' Donuts store operators, to energy companies.

In a positive turn, the Equifax report did note that bankruptcy rates seem to be improving in some metropolitan areas like Charlotte, North Carolina, New York-White Plains, and Atlanta, also indicating that the East Coast may be experiencing an earlier recovery from the recession than the West Coast.

According to the report, California continues to be the state hit hardest with bankruptcy filings, with eight of the top 15 metro areas in terms of bankruptcy filings.

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Posted in Bankruptcy News and Events | 5 Comments »

Monday, October 12th, 2009

Bankruptcy Filings Could Hit 1.4 Million in 2009

Total bankruptcy filings for 2009 are on track to hit 1.4 million by year's end, according to recent statistics, with more than 5,900 personal bankruptcy petitions filed each day nationwide.

Between January and September, more than 1.07 million petitions were filed, according to statistics collected by Automated Access to Court Electronic Records, or AACER, a nearly 33% increase over the same period of 2008.

The rate of filings peaked in May, with more than 6,000 individuals filing bankruptcy per day, but has decreased only slightly as the recession wears on.

Bankruptcy Filings Return to 'Natural Levels'

The continual rise in bankruptcy rates from 2006's low should be expected, according to University of Illinois College of Law professor Robert Lawless. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) that took effect in 2005 led to an immediate decrease in filings, but only due to the massive increase in the month before it took effect.

Lawless sees it as a "return to the 'natural level' of bankruptcy filing rates in this country."

Current economic conditions have only sped up the process by which people run out of options and turn to bankruptcy protection, Lawless says.

"When people can no longer borrow on their credit cards to stave of the day of reckoning, they end up in bankruptcy court."

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Posted in Bankruptcy News and Events | 3 Comments »

Friday, September 25th, 2009

Filing Bankruptcy & Foreclosure in America 2009

Check out this infographic on filing bankruptcy & foreclosure:

Bankruptcy and Foreclosure Rates for The U.S. in 2009

Bankruptcy and Foreclosure Rates for The U.S. in 2009

Check out filing bankruptcy and foreclosure statistics by state.
Startling statistics about filing bankruptcy and foreclosure in America this year:

  • A foreclosure action is taken every 10 seconds. There were 1,528,364 total foreclosure actions taken in the first half of 2009.
  • An individual files bankruptcy every 22 seconds There were 699,104 total personal bankruptcy filings in the first half of 2009.

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Posted in Bankruptcy and the Economy, Mortgage Foreclosure | 16 Comments »

Friday, September 4th, 2009

High California Unemployment a sign of Economic Recovery?

Last week, the LA Times released an article pronouncing:

California unemployment hits post-World War II high. The rate jumped unexpectedly in July to 11.9% even as the national rate declined.

The purpose for this, it seems, is to inform the public of the rampant unemployment problem in the country’s largest state.

However, as in life, there is always a ‘yin’ to the ‘yang’.

High Unemployment Number, But is This the End of the Recession?

Explaining the positive side to this grossly negative numerical fright is Jerry Nickelsburg, a senior economist with the UCLA Anderson forecast:

Historically, unemployment rates continue to rise after the end of the recession. . .we're not creating enough jobs, we're losing jobs, and so that makes the unemployment rise. The importance of this is the reference to the ‘end of the recession’.

The Pain of Unemployment

If you ask the 35,800 California workers who lost their jobs last month (which is more than any other state) or the more than 760,000 residents who have lost their jobs in the last year--- the recession is far from over.

California has staggering average home prices, the nation’s highest cost-per-gallon of gas on average and is also notorious for their “sunshine taxes”. This only adds salt to the wounds of the unemployed.

California Losing Its Allure?

For so long California has been the Mecca for those searching for fame and fortune.
This began with the gold rush of 1849 and continued with the boom of the railroad, the rise of Hollywood fortunes and the blossoming of Silicon Valley.

The 16% unemployment rate won’t concave the mystique of California, but it’s worth noting that California is tied with Oregon for the fourth-highest unemployment rate in the nation, behind Michigan, Rhode Island and Nevada.

Some experts say the state is shedding jobs at a faster rate than the rest of the nation because of the prior dependence California had on their building/construction industry.

Whatever the reason, there are still large groups of unemployed workers in search of work.

We may see more Californians filing bankruptcy if this unemployment continues to rise.

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Posted in Bankruptcy and the Economy | No Comments »

Thursday, March 8th, 2007

More Evidence of Increasing Bankruptcy Filings

Bob Lawless at the Credit Slips blog made an interesting analysis this week based on a comparison of February bankruptcy filings to January bankruptcy filings.  At first glance, the increase in filings from January to February appears to be fairly small but, as Lawless points out, there were three more business days in January than there were in February.  On a filings-per-business-day basis, the February figures reflect an increase of more than 17 percent over January.

Lawless goes on to crunch some other numbers and predict an approximate 30 percent increase in filings in 2007 over 2006--and the estimate is based on some very conservative assumptions.  The original post is worth a read.

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Posted in Bankruptcy News and Events | No Comments »