Bankruptcy Expert: 1.4 Million Companies Could Go Under

Bankruptcy Expert: 1.4 Million Companies Could Go Under

Friday, August 14, 2009 11:05 AM

WASHINGTON/WILMINGTON, Del. -- U.S. bankruptcy filings rose 38 percent in April-June from a year ago, according to court data released on Thursday, as consumers and business were hit by rising unemployment and a lack of credit.

Overall, 381,073 bankruptcies were filed in the second quarter, up 15 percent from the first three months of the year and up 38 percent from a year ago, according to the Administrative Office of the U.S. Courts.

More than 16,000 businesses filed for bankruptcy in the quarter, the highest in the three-month period since 1993, according to the American Bankruptcy Institute.

The number of business failures rose 64 percent from the same quarter a year ago and Chapter 11 business filings more than doubled in the first half, compared to the first half in 2008. Major second-quarter filings included Chrysler LLC and General Motors Corp, both among the 10 largest filings ever, which sent many of their suppliers into bankruptcy as well.

"I think what we're seeing is a significant increase in Chapter 11 filings in the small business area, among businesses that would have traditionally weathered the economic storm," said Jack Williams, a professor at the Georgia State University College of Law.

Williams said he expects total filings to reach 1.4 million this year, which would be the highest since 2005, when there was a surge of consumer filings ahead of legal changes.

He said bankruptcy filings tend to lag an economic rebound by up to a year. With an increasing number of state governments cutting workers, he said the filings could accelerate.

"We may be about to see another significant spike."

Tennessee led the country with the highest concentration of filings at 8.1 filings per 1,000 people, double the national average of 3.89 per 1,000. Nevada, which has been hard hit by the housing crash and drop in tourism, had the second-highest concentration of filings.

Alabama, Georgia and Indiana rounded out the five hardest hit states.

Alaska, the District of Columbia, Wyoming, Hawaii and Texas had the fewest filings per 1,000.

States hard hit by the crisis in housing and the automotive industries, such as Michigan, Florida and California, continued to have large numbers of filings. While filings in Michigan increased only 4 percent, those in California and Florida rose more 20 percent on quarter.

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