Tuesday, August 29, 2006

Why are Bankruptcy Filings Falling?

The LA Times reported a 2.6% decrease in businesses filing bankruptcy throughout the USA compared to a year ago. It seems counterintuitive given the softening of the economy, the rise in interest rates and the early signs of inflationary pressures.

Paul Shankman, an attorney with many years of experience in business bankruptcy law, believes that significant revisions to the bankruptcy laws in October 2005 may be a contributing factor for the decrease in business reorganization, or Chapter 11 filings. Shankman states that the new bankruptcy laws make it more difficult for a business to file for bankruptcy protection and more costly to exit. Some examples of the material changes include a reduction in the timeframes for making certain critical business decisions during the bankruptcy, such as lease rejections/assumptions and less time to propose and confirm an exit plan.

The bottom line - there's a reason for fewer bankruptcies and it may not be that businesses are experiencing fewer cash flow problems. But if your business is struggling with cash flow problems, don't wait till the last minute to understand the implications of obtaining asset based financing in lieu of a bankruptcy option! There may be financing options that can keep you filing for bankruptcy protection.

Please feel free to contact me with questions or ideas for future articles!

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