As the Economy Plummets, Bankruptcies Escalate

In 2009, 372 cases of bankruptcy were filed in the Midland Division of the Western District of Texas’ US Bankruptcy Court. This figure was a rise from the 243 filed in 2008 and represented an increase of about 53%. Most of these were filed by companies under Chapter 11 bankruptcies. In a typical year, an average of 80% of bankruptcies are Chapter 11 ones. But of late, there has been also a rise in filings by individuals who file either under Chapter 7 or 13.

The rise in bankruptcies is seen as a domino effect originating from a weaker economy and falling oil prices that result in poor business performances of many companies. Especially hit were smaller companies with up to 100 employees in the oil service industry that had to implement drastic belt tightening measures including laying off workers. This naturally resulted in workers working fewer hours and eventually trying to pay their overdue bills on credit or resorting to money lending services. These desperate attempts to stay financially afloat would only exacerbate the situation and eventually many file for bankruptcy.

Despite the rise in number of bankruptcies last year, the numbers were still lower compared to before the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) came into effect in 2005. The average number of bankruptcies pre-BAPCPA was 911 a year (the highest was 1,205 cases in 2005). But after the BAPCPA took effect, the numbers have become closer to 273 a year, a reduction of about 70%.

The BAPCPA made it mandatory to attend pre-bankruptcy credit counseling and a financial management course before your debts could be discharged. But the most prominent feature of the BAPCPA is a system that makes it more difficult to obtain a Chapter 7 bankruptcy approval thus forcing people seeking bankruptcy to file under Chapter 13 instead. A Chapter 7 bankruptcy eliminates your unsecured debts like credit card and medical bills whereas a Chapter 13 bankruptcy restructures your debts such that you repay them over a period of 3 to 5 years.

But the BAPCPA is not enough on its own to reduce the number of bankruptcies if oil prices continue to plummet. Should the oil prices stabilize, it would still take 60 to 90 days before the oil companies can benefit from it and even longer for it to be felt by the workers.

Hence, there is unlikely to be a significant reduction in the number of bankruptcies filed this year at least for 6 to 9 months.

If you are contemplating filing for bankruptcy either for your company or yourself, contact our team of  Tampa lawyers at (813) 200 4133 or toll free (800) 965 5074 for a free consultation.