Business bankruptcies in the US down 24 percent in 2013

February 2014 | DEALFRONT | CORPORATE BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

Business bankruptcies fell to their lowest level since 2006 last year, dropping 24 percent according to data held by the American Bankruptcy Institute (ABI). In total, bankruptcies by businesses and individuals fell by 13 percent.

Bankruptcy filings for both commercial and non-commercial entities reached their highest point in 2007 following the onset of the financial crisis, however in recent years the number of filings has steadily dropped. The decline can be attributed to some degree to the US Federal Reserve’s decision to keep borrowing costs down. Indeed, low interest rates have enabled a great many companies to refinance their existing debts and thus keep their head above water.

Cheap credit in particular has provided the catalyst for many companies opting for out of court restructurings, rather than more typical court based bankruptcy proceedings. By restructuring out of court, companies are able to save considerable time and money while mitigating the concerns of creditors.

According to the report, compiled for the ABI by bankruptcy claims processor Epiq Systems Inc, just 44,111 businesses filed for bankruptcy in 2013, down substantially from the 57,964 filings witnessed in 2012. In 2007 there were 46,132 commercial and personal bankruptcy filings in the US. “Annual bankruptcy filings will likely continue to drop amid sustained lower interest rates and high costs to file,” said Samuel Gerdano, executive director of the American Bankruptcy Institute, in a statement. “As fewer consumers and businesses turn to the Bankruptcy Code for a financial fresh start, the court system, which relies on bankruptcy filing fees for funding, is also affected. To make sure that justice remains accessible, ABI joined four other national organisations to express strong support for the Federal Judiciary’s FY 2014 funding appeal.”

The ABI’s data suggests that the total number of filings by businesses and individuals fell to 1.03 million, down from 1.19 million in 2012. The number of filings fell in every state in the US; however the persistently difficult economic conditions witnessed in Puerto Rico led to a 7 percent increase in the number of filings there in 2012. By way of comparison, the average number of bankruptcy filings by both businesses and individuals over the past five years was 1.32 million per year. The 988,215 total non-commercial filings completed during 2013 represented a 12 percent drop from the non-commercial filing total of 1,128,173 registered during 2012.

Larger US based businesses tend to incorporate themselves in Delaware, a decision which enables them to use the US bankruptcy court there if they require protection from creditors. The US bankruptcy court in Los Angeles was the most popular court in the country in Chapter 11 business filings between 2010 and 2012. The bankruptcy court in Manhattan, also among the busiest in the country, last led in Chapter 11 business filings in 2009, according to the ABI. Tennessee had the highest per capita bankruptcy filing rate of any state, at 6.59 filings per 1000 people. The national average of per capita bankruptcy filings was 3.33. Georgia (5.74), Alabama (5.65), Utah (5.16) and Indiana (5.00) had the next highest average amount of filings in 2013.

There has been a growth of interest in Chapter 9 municipal bankruptcy filings among restructuring professionals over the last 12 months. High profile instances of Chapter 9 filings involving major cities and counties such as Detroit, Stockton, California, and Jefferson County, Alabama have seen municipal bankruptcies take centre stage recently.

Richard Summerfield