Last month’s Chapter 11 filings dropped slightly compared to the end-of-the-year rush that marked December 2008, but tough economic conditions continue to keep rates hovering at levels significantly higher than at the same time last year.In January, 1,082 businesses and individuals sought Chapter 11 protection, an increase of 54.4% from the first month of 2008, according to new data from AACER, aprivate firm that tracks bankruptcy filings.
Although the numbers also represent a 5% decrease from December 2008, Jack Williams, the resident scholar at the American Bankruptcy Institute, doesn’t think the data indicates that bankruptcies will be easing any time soon.
He’s predicting that Chapter 11 filings will rise at least 40%in 2009 from their 2008 levels and that total bankruptcy filings will hit the 1.4 million mark this year.“
I think 40% is optimistic,” Williams said in an interview Tuesday, pointing to bleak economic indicators like low consumer confidence and high default rates. “It could very well be worse.”
2008 already saw a 61.6% increase from 2007, and with1,139 filings, December was the biggest month for Chapter11 petitions in three years.
Williams said the December numbers are especially striking because lenders tend to be less aggressive, especially with retailers, at the very end of the year.
“Deep in December everybody’s willing to roll the dice with you to get you through the last part of the Christmas season,” he said, adding that that can lead to more filings in January.
Williams, who also teaches bankruptcy law at Georgia State University, sees retail, real estate and manufacturing driving bankruptcy filings over the next year. Already, 2009 has seen Chapter 11 filings from Smurfit-Stone Container Corp., one of the largest cardboard box makers in the country, and apparel company Hartmarx Corp.
Other businesses, like electronics retailer Circuit City Stores Inc., celebrated the New Year by abandoning plans for reorganization in favor of liquidation.
“Companies aren’t even attempting to rehabilitate anymore,” Williams said.
The number of total commercial filings — including Chapter 7 petitions, whereby companies go straight into liquidation — reached 5,799 last month. And Williams expects many more businesses to follow suit in the coming weeks, as the extra money brought in during the holiday season begins to run dry.
“The first quarter of each calendar year is the quarter business is most vulnerable,” he said.
The victims could include some big names.
“There will be more than a handful of companies that you won’t have to say, ‘Oh, what do they do?’” he said. “You’ll know them.”
