Bankruptcy Decline

October 16, 2014 - Total bankruptcy filings reached 705,452 nationwide during the first nine months of 2014 (Jan. 1-Sept. 30), a 12 percent decrease from the 801,989 total filings during the same period a year ago, according to data provided by Epiq Systems, Inc.Total commercial filings (Chapter 7 & 11) during the first nine months of the year were 26,767, representing a 22 percent decrease from the 34,479 filings during the same period in 2013.

Chapter 11 filings also fell during the first nine months of 2014 as the 4,099 filings represented a 21 percent decrease from the 5,183 chapter 11 filings during the first nine months of 2013. This continues a year-over-year downward trend that began after US business filings had a post millennial peak in 2009 with 60,837 annual business filings.

“The prolonged drop in bankruptcy filings reflects the financial landscape facing consumers and businesses,” said American Bankruptcy Institute (ABI) Executive Director Samuel J. Gerdano. “Amid sustained low interest rates and high filing costs, total bankruptcies for the year will fall below 1 million for the first time since 2007.” “The prolonged drop in bankruptcy filings reflects the financial landscape facing consumers and businesses,” said Gerdano.

According to a report from the U.S. Bankruptcy Court Western District of New York 3,712 bankruptcy filings have been recorded in the 17-county district. This is the lowest number of filings for the first nine months of the year since before 2005. This data is of interest to us because although we conduct our bankruptcy auctions nationwide, Blackbird Asset Services is located in Buffalo NY. While a decline in bankruptcy filings can be interpreted as a positive indicator for any area, some bankruptcy attorneys are not all optimistic.

According to attorney Garry Graber, lead bankruptcy counsel for law firm Hodgson Russ LLP, the continued downturn in business filings from the peak in 2009 is due to a number of factors including the culling of many teetering businesses following the “meltdown”, an improving economy and low interest rates over the last five years. “There is a much greater reluctance on the part of institutional lenders to support a restructuring, especially if the assets can be flipped to a ‘loan to own’ acquisitor or alternatively if the lender’s senior debt can be sold for a substantial portion of non-charged-off principal” says Graber. There also seems to be a greater reluctance on the part of bankruptcy judges to let cases languish. Graber continues that “The industry has matured to the point in which Chapter 11 is more likely to result in a full or partial liquidation than a traditional reorganization.   The costs of restructuring, fueled in part from the many litigation ‘opportunities’ presented in the bankruptcy context, also plays a role in these dynamics.” While this trend might fuel Blackbird Auctions with auction opportunities, it creates a shrinking pool of cases for other bankruptcy professionals to draw from.