Bankruptcies drop across the board, Chapter 11 filings nosedive

Continuing the Chapter 11 theme from our last post, the American Bankruptcy Institute recently released a report that says Chapter 11 bankruptcies filed by businesses plummeted over the last year. In Jan. 2012, there were 749 such Chapter 11 bankruptcies — whereas this January, there were only 479. That represents a remarkable 36 percent drop.

The year-over-year numbers showed similar signs of decline in other areas of bankruptcy (although the drop was not as dramatic as the Chapter 11 business filings). Total commercial bankruptcy filings slipped 26 percent, and all bankruptcy filings declined to the tune of 11 percent.

Bringing it back to Chapter 11 filings, this decline is certainly a positive sign. It means that the economy is turning and that fewer businesses need the protection provided by a Chapter 11 filing. To be fair, there is nothing wrong with filing for bankruptcy. It can actually be quite beneficial for a business. For example, it can buy the company some time to tidy up its financial situation, allowing them to pay back their creditors.

It is important to remember that while Chapter 11 bankruptcies are mostly associated with businesses, individuals can qualify for Chapter 11 bankruptcy too. If an individual has enough personal assets to qualify for this type of bankruptcy (such as a valuable piece of property), they can file for Chapter 11. Such a filing offers a better chance to protect those assets than a Chapter 13 filing.

It can still be a complicated process with many ins and outs; so anyone seeking such a filing should consult a bankruptcy attorney with experience handling personal Chapter 11 cases.

Source: Reuters, “U.S. commercial Chapter 11 bankruptcies fall 36 pct in January,” Tom Hals, Feb. 5, 2013

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