Chapter 11 Bankruptcies: A Ripple Effect of the Credit Crunch?
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Bankruptcies: A Ripple Effect of the Credit Crunch?

It's no longer news that the United States housing market is in a slump: you can hardly turn on a television or open a newspaper without being bombarded with foreclosure statistics, stories and rescue efforts. And the credit crunch, too, has become a familiar tale.

The ripple effects of the foreclosure crisis and credit crunch, though, haven't been as widely broadcast. But around the country, companies that flourished when the housing market was strong are now struggling.

In the fall of 2007, the Bombay Company declared Chapter 11 bankruptcy. Bombay, which sold furniture and home décor, saw a serious drop-off in business when the real estate market's boom period ended. Many shoppers who had been purchasing goods to decorate new homes and update existing homes were now struggling to pay reset mortgages. Essentials trumped accessories.

Then, in late December, Scan International Incorporated, a furniture company based in Maryland and Virginia, filed for Chapter 11 bankruptcy, according to the Baltimore Sun. Scan sold higher-end furniture, and sources say two major factors were largely responsible for its financial troubles.

First, the slowed housing market meant less interest in home furnishings. Second, competition from stores that sell lower-priced goods proved too much for Scan to remain competitive. Especially as credit becomes more difficult to obtain by consumers, inexpensive goods are more appealing than higher-quality, higher-priced ones.>

And that trend doesn't just apply to furniture.

New Jersey-based Harvey Electronics, Inc. is also filing for Chapter 11 bankruptcy, according to NorthJersey. Harvey, which specialized in high-end electronics sales and installation, has felt the housing and credit pinch as well.

Plus, with technological advancements making quality sound systems more affordable than ever, and retailers like Wal-Mart and Target offering diverse electronic gear, specialty stores like Harvey have trouble maintaining their competitive edge.

Though these are only a few examples of bankruptcy filings occurring across the United States, information from the Bureau of Labor Statistics suggests that they represent a bigger trend.

Mass layoffs statistics for the third quarter of 2007 show that the construction industry had the most mass layoff actions of any industry in 2007, with the exception of the manufacturing industry, which contains a much broader range of professions.

Within the manufacturing industry, computer and electronics manufacturing and furniture and related products manufacturing were two of the hardest-hit subgroups.

These "home-filling" industries seem to be the second tier affected by the massive foreclosure action and tightening of credit in the United States. As the market continues to react to current slumping conditions, more and more industries could be affected.


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