By Daniel Gill
Consumers are filing fewer bankruptcies in a stronger economy, but Chapter 11 filings by corporations are up, possibly a reflection of retail sector weakness.
Unfolding U.S. trade uncertainty and its potential impact on bankruptcies also may be something to watch going forward, a prominent law school professor and former bankruptcy judge suggested to Bloomberg Law.
Bankruptcy filings overall fell 2.6 percent to 775,578 for the year ending June 30, compared to the same period a year ago, the Administrative Office of the U.S. Courts reported July 24.
Non-business filings, which comprise most of the activity and capture consumer bankruptcy, fell 2.5 percent to 753,333, while business filings fell 5 percent to 22,245. Business filings include those for Chapter 11, which rose 2 percent to 7,141.
“The drop in consumer filings likely follows strong job reports; people don’t file as fast if there is money coming in,” Bruce A. Markell, professor of bankruptcy law at Northwestern Pritzker School of Law in Chicago, told Bloomberg Law.
“The rise in Chapter 11 filings, however, may indicate some weakness in various sectors, most prominently retail,” he said.
The recent uptick in retail bankruptcies has been widely reported, including companies like Toys ‘R’ Us , Gibson Guitars, Claire’s, Payless Shoes , Gymboree, Remington, and Bon-Ton Stores.
Looking ahead, Markell suggested that uncertainty stemming from possible trade wars and its effect on future filings will be “something to watch.”
The figures present filing numbers for cases filed under Chapters 7, 11, 12 and 13 of the Bankruptcy Code.
In Chapter 7, a debtor’s assets are liquidated by a trustee for the benefit of creditors.
In Chapter 13, individual debtors pay some or all their debt through a court-approved payment plan of three or five years.
Chapter 11 protects companies or individuals from creditors while they seek to reorganize their debt or liquidate under a plan that must be approved by the bankruptcy court.
Chapter 12 is designed to protect family farmers and family fishermen.
Here’s how the latest filings break down by chapter:
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