Business bankruptcies down, but trouble expected in 2007
The Business Journal of Milwaukee - by Jennifer Batog
Business bankruptcy filings are down slightly so far this year in the Milwaukee area, but bankruptcy attorneys say they expect to see a surge within the next year of businesses seeking relief from creditors.
The slight drop in bankruptcy filings likely is because most Wisconsin businesses file under a state statute that allows companies to go into receivership, which is less expensive and more expedient than federal statutes, area attorneys said. In addition, some companies are trying to work with their creditors out of court due to uncertainty over how judges will interpret changes to the bankruptcy laws which took effect in October 2005.
Through June 30, 218 businesses filed for bankruptcy in the U.S. Bankruptcy Court's eastern district in Milwaukee, down 6.8 percent from the 234 filings a year earlier, 2005, according to U.S Courts figures.
Those figures include filings under Chapter 11, which allows companies to reorganize their debt; Chapter 7, under which companies liquidate assets; Chapter 12 for family farms; and Chapter 13, which allows sole proprietorships to repay debt in installments.
Bankruptcy attorneys said they are starting to see indications that companies which were able to hang on during the strong economy are starting to flounder.
Attorneys who specialize in bankruptcies and financial workouts report that business is picking up, said Daryl Diesing, a shareholder and bankruptcy attorney at Whyte Hirschboeck Dudek S.C., Milwaukee.
"More companies are having difficulties," Diesing said. "I think the activity is increasing with troubled companies or the amount of issues companies are facing financially."
Some businesses are encountering difficulty maintaining sales levels, Diesing said. The greatest impact is felt by firms facing overseas competition, business-to-business suppliers and firms that have not adapted well to new technology, Diesing said.
Aggressive lending
As banks competed more aggressively for commercial loans when interest rates were low, some lenders loosened their requirements and issued loans to companies that relied on the loans to stay afloat. Now, as interest rates have risen, some companies may not be able to cover the loans, said Faye Feinstein, a partner at Quarles & Brady, Milwaukee.
"It's like the consumer who keeps using one credit card to pay the next," she said. "At some point, the rates are going to climb to a level where companies are not going to be able to afford to keep repaying these loans."
Companies caught in that bind will need to consider restructuring their finances, Feinstein said. Feinstein said she expects to see an influx of companies trying to work out deals with creditors, either through bankruptcy or through out-of-court negotiations, in 2007.
Some sectors that may be prone to difficulties include construction businesses, as the real estate market begins to falter, and automotive suppliers, including manufacturers that supply products to first-tier suppliers, Feinstein said. Their fortunes depend greatly on what happens as General Motors Corp. and Ford Motor Co. revamp their businesses, she said.
"Their model depends on certain customers," she said. "When their customers are in trouble, they're in trouble."
Through August, all bankruptcies -- including those filed by businesses and individuals -- in eastern Wisconsin were down 66 percent, to 4,999 from 14,858. Chapter 7 filings were down 72 percent, to 3,504, while Chapter 11 filings were up 42 percent, to 17 from 12. A breakdown of figures for business filings through August is not yet available.
SLIGHT DECLINE
The number of business bankruptcy filings in U.S. Bankruptcy Court's eastern district of Wisconsin in Milwaukee was down slightly through June 30. Here are the number of business bankruptcies, by chapter:
| Chapter | 2006 | 2005 | Percent change |
| 7 | 171 | 198 | -13.6 |
| 11 | 21 | 18 | 16.7 |
| 12 | 3 | 1 | 200 |
| 13 | 23 | 17 | 35.3 |
| Total | 218 | 234 | -6.8 |
Source: U.S. Courts administrative office, Washington, D.C.
Related Industry News |
Latest News |
Most Viewed Stories |
Most Emailed Stories |
