Increase in Consumer BK Volume Should Lead to Increased Chapter 11 Filings
There is an interesting statistical tid-bit posted on the American Bankruptcy Institute web site today concerning the increase in consumer bankruptcy filings and their connection to the sub prime mortgage crisis:
U.S. consumer bankruptcy filings increased more than 30 percent nationwide in January from the same period a year ago, according to the ABI relying on data from the National Bankruptcy Research Center (NBKRC). While the consumer filings for January increased from the previous year, the data showed that the overall January consumer filing totals were flat from December. Chapter 13 filings constituted 40.05 percent of all consumer cases in January, a slight increase over December. “With over one million more subprime adjustable-rate mortgages due to reset during 2008, the payment shock for many households could lead to higher bankruptcies this year,” said ABI Executive Director Samuel J. Gerdano. The overall consumer filing total for the 2007 calendar year (Jan. 1 – Dec. 31, 2007) reached 801,840, nearly a 40 percent increase from the 573,203 filings recorded during the similar period in 2006. Click here to view the updated monthly consumer filing charts.
With consumer cases building in volume, it is logical to conclude that Chapter 11 filings will increase, especially for businesses involved in residential construction and mortgage lenders. One example of the fallout from the mortgage debacle also appears on the ABI web site just below the above story:
New Century Financial Corp. and its creditors filed a chapter 11 plan yesterday that does not say how the company plans to pay creditors who have filed $35 billion in claims against it, the Associated Press reported yesterday. Once one of the country's largest subprime lenders, New Century raised only about $235 million by selling assets in its bankruptcy liquidation, according to documents filed Saturday in the U.S. Bankruptcy Court in Wilmington, Del. New Century's chapter 11 plan said that negotiations are underway that could cut the amount of claims filed in the case. Creditors filed $23.7 billion in secured claims and $10.5 billion in unsecured claims. Read more.
Another example of sub prime mortgage related failures is the Chapter 11 filing on friday of Wickes Furniture as noted in the Chicago Tribune:
Wickes Furniture Co., hit by the downturn that has hit furniture retailers in the wake of the housing industry's big slump, filed Sunday for Chapter 11 bankruptcy protection.
Wickes, based in Wheeling, is owned by Sun Capital Partners Inc., a Boca Raton investment firm that specializes in leveraged buyouts and other transactions.
In its filing with the federal bankruptcy court in Wilmington, Del., Wickes declared that it has assets of between $10 million and $50 million, and estimated its liabilities at between $50 million and $100 million.
The trade magazine Furniture Today reported in mid-January that Wickes Furniture was asking suppliers to sign an agreement that would postpone the company's repayment of overdue debt until mid-2009.
When viewing these sub prime mortgage related bankruptcy news items, one can't help but get the feeling that this is just the tip of the iceberg. Things could be become very busy very fast for all reorganization professionals.
