Chapter 7 filings up 60 percent in north Georgia
Chapter 7 bankruptcy filings, in which companies liquidate completely or consumers give up trying to pay their debts, soared 60 percent in north Georgia during the first six months of this year, compared with the same period in 2008.
Total bankruptcy filings increased more than 34 percent during the six months — from 18,124 to 24,328 — according to U.S. Bankruptcy Court for the Northern District of Georgia.
The new Chapter 7 filings — which rose from 9,584 to 15,363 — highlight the continued drag of the recession, said Jessica Gabel, a bankruptcy professor at Georgia State University’s College of Law. The volume of new filings has remained steady during 2009; the number in the first quarter was up 61 percent.
The numbers don’t break out how many of the liquidations were filed by businesses as compared to those filed by consumers.
“The business cases I’ve seen in the last year or so have been developers,” said Paul Henry Anderson Jr., a Bankruptcy Court Chapter 7 trustee in the northern district. “I just haven’t seen that many [business Chapter 7 filings] this year over last year, but I expect to see them in the future given the way this economy is going.”
The consumer and business bankruptcy trends are interlinked, Gabel said.
On the consumer side, rising unemployment means more filers meet the income guidelines to qualify for discharging their debt, she said. As unemployment benefits run out, some of them may end up in foreclosure, leading to more Chapter 7 filings.
More worrisome is how tight the credit markets remain for businesses, particularly retailers, for the balance of the year, she said. For example, CIT, a lender to small businesses and mid-sized firms, itself needed a $3 billion loan from bondholders, giving it enough liquidity to continue operations.
Retailers, Gabel said, get short-term financing from companies like CIT to buy the goods now that they’ll be putting on store shelves for the holiday selling season. If they can’t get that financing, they won’t order as much, resulting in lower sales.
“If you’ve got a lackluster holiday season and this correlating line of people not having the money to buy goods, what we could see is a secondary downstream effect of retail bankruptcies,” Gabel said.
“It’s all tied together — the factory orders go down and the factory doesn’t need as many workers and it all starts all over again with another cycle of layoffs.”
Under bankruptcy law, if a business thinks it can survive, it may seek Chapter 11, which protects it from creditors while it reorganizes. The firm can later convert to Chapter 7 if the reorganization fails.
