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In an indication of growing economic turmoil, U.S. bankruptcy filings increased by 48% during the first half of this year, compared with the same period the year before, according to the American Bankruptcy Institute, which compiles data from the Administrative Office of the U.S. Courts. This year, bankruptcy filings totaled 404,090, compared to 272,604 during the first half of 2006, according to the ABI. The increase marks a significant shift since filings plummeted after the Bankruptcy Abuse Prevention and Consumer Protection Act became effective on Oct. 17, 2005. Bankruptcy lawyers said they expect the increase to continue, particularly in light of the recent mortgage meltdown and growing credit crunch. In preparation for the impending economic downturn, several law firms have launched bankruptcy and restructuring practices or plan to increase those departments in coming months. “Clearly, the state of the economy is having an impact,” said Harvey R. Miller, with the business finance and restructuring department at New York’s Weil, Gotshal & Manges. “You have an economy stretched on credit a year ago or more, and the rubber band has been stretched to the point where it’s breaking.” Filings for the most recent quarter totaled 210,449, the highest since the new bankruptcy law became effective, according to the ABI. In the first quarter of 2006, total filings had dropped to 116,771 after a rush to file under the previous bankruptcy law caused them to soar to 667,431 in the last quarter of 2005. Sam Gerdano, executive director of the ABI, noted that filings remain drastically lower than they were in quarters preceding the new bankruptcy law, but predicted that the increase will continue. “Any kind of pull-back in financial availability means a whole group of enterprises that have been using the liquidity to stave off the inevitable are going to come to an end,” he said. While most of those filings represent consumer bankruptcies, rather than business restructurings, law firms are predicting a wave of corporate activity in the fourth quarter and beyond, Gerdano said. Business filings for the first half of 2007 rose to 12,985, up 45% from the same period last year. “If you’re in the legal business, this activity is really going to throw off, and is already throwing off, a growing amount of work,” Gerdano said. “That’s why a lot of firms are jockeying for position, ramping up and acquiring practice groups from other firms. They believe the next wave is coming and want to be ready from day one when it hits.” In June, for example, Steptoe & Johnson LLP launched its real estate finance litigation, restructuring and insolvency practice. Greg Yates, a partner in the New York office of the Washington firm and member of the practice team, said the plan is to double the practice to 30 lawyers in preparation for a “tremendous explosion of filings” across several sectors. Miller, who served more than four years as managing director and vice chairman of investment banking firm Greenhill & Co., said he returned to Weil Gotshal in March because, in part, “I saw the cycle beginning to change.” In the past two or three weeks, more clients have been asking him about the consequences of the recent credit crunch, Miller said. While the problems of the past month will create some shakeout, significant business filings are expected to grow, said Richard Levin, a partner at New York-based Cravath, Swaine & Moore who joined in July to head the new restructuring and insolvency department. Levin, who is one of two lawyers in the department, said he expects to have five in the practice by year’s end. “This has become a mainstream practice . . . .Banks and funds are always involved in bankruptcies,” he said. “But the firm has decided it was time to service those client needs rather than sending them elsewhere.”

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