Business Bankruptcies Outpace Individual Filings

Well, this isn't really good news: the number of bankruptcy filings by businesses in the U.S. is officially rising faster than the rate at which individuals file.

The less stability in the business world, the less stability in the job market. In turn, meaning that those on the brink of serious financial trouble, may soon go beyond the brink. And, for those trying to make a successful transition out of bankruptcy, the lack of work opportunities are making it exponentially more difficult.

You may be reading about faint signs of recovery from the Great Recession. A rally on Wall Street; rising new home sales and a better than expected holiday sales season. Well, what we are not reading about is the pain being caused by the exceptional unemployment rates. And as long that hovers around double digits, we shouldn't not expect a full recovery. That's why more business bankruptcies are a little scary.

A service called Automated Access to Court Electronic Records compiled data that indicated more than 15,000 businesses filed for Chapter 11 bankruptcy in 2009, an increase of 50 percent. Small business Chapter 7 liquidations jumped 38 percent from 2008. Each number, respectively, was more than double the increase between 2007 and 2008.

The rate for individual bankruptcies climbed by only 32 percent. Unfortunately, a large percentage of those came at the hands of unemployment. And in light of the recent news concerning the rate of business filings, it only looks as if the two statistics are going to continue intertwining, wrapping our nation in a perpetual dance of financial misery.

Thankfully, the number of filings for 2009 still remain just below the record set in 2005 before the Bankruptcy Abuse Prevention and Consumer Protection Act was enforced.

In the last two weeks before the reforms became official, 630,000 people filed bankruptcy to avoid the more difficult path to Chapter 7 via the Means Test, a component of the new law that "qualifies" people for Chapter 7.

But now, with Chapter 7 numbers back at their pre-2005 rate, many who had thought they would fail to qualify for bankruptcy are finding out that the Means Test is no big hurdle.

However, the greatest fear to emerge from the increases in both commercial and individual bankruptcies is the notion that the credit industry make begin to seek tougher amendments to its 2005 action or worse yet, lobby for new anti-bankruptcy laws. Scary thought.

Ronald Mann, a Columbia law professor, believes the 2005 law was not warranted and that " ... it was largely ineffective. I don't think anybody who's knowledgeable about the bankruptcy system thought the statute was well crafted."

Recent filings are showing a shifting demographic in the bankruptcy system. When at one time those who made between $40,000 and $80,000 were prevalent, salary ranges of those who file is beginning to grow into the $100,000 to $300,000 range.

There is no denying the connection between business bankruptcies and the rate at which individuals file. It's all in the jobs report. And as both types continue to impact the country, we need to keep our other eye on the lobbying efforts of the lending and credit industries. There is no telling what they may think of next.