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Bankruptcy filings slipped to their lowest rate in a decade in 2016, according to a report released Wednesday by the Administrative Office of the U.S. Courts.
Federal court data shows that there were 794,960 bankruptcy filings—including business and nonbusiness—during the 12-month period ending Dec. 31, down 5.9 percent from the end of fiscal 2015, when there were 844,495 bankruptcy filings.
Within the business sector, there were 24,114 filings in 2016, down from 24,735 the year before. These numbers stand in stark contrast from several years ago during the height of the U.S. bankruptcy boom when there were 40,075 business bankruptcy filings in 2012 and 33,212 in 2013.
While a confluence of factors contributed to declining filings, bankruptcy lawyers attribute most of the slowdown to historically low interest rates that kept heavily indebted companies afloat and the rise of prepackaged corporate reorganization plans.
“Since the great recession, [interest rates] have been trending close to zero,” said Howard Beltzer, senior counsel in Chadbourne & Parke’s restructuring group in New York. “It was only at the end of last year that rates picked up a little bit when the Federal Reserve finally had a rate increase after the election.”
While there is no crystal ball to predict which way interest rates will go in 2017, any upswing in such rates could mean more business bankruptcy filings as corporations’ default.
“It’s possible that this coming year will be the first year in quite a while that there’s actually an uptick in the bankruptcy filings,” said Beltzer, who joined Chadbourne earlier this month from Mayer Brown, where he was a partner.
While the number of filed bankruptcies was down, specific industries like the retail and energy sectors saw an increase in activity, which could be indicative of a changing tide for the bankruptcy sector.
In 2015 and 2016, brand name retailers like Aéropostale, American Apparel, Eastern Mountain Sports, RadioShack and Sports Authority all sought Chapter 11 protection. Klehr Harrison Harvey Branzburg bagged a lead role advising women’s apparel chain The Limited on its bankruptcy filing last week in Delaware.
The American Lawyer reported last year on a surge in energy bankruptcies. In 2016 alone, more than 70 oil and gas producers in the U.S. and Canada filed for bankruptcy, according to data collected by Haynes and Boone. National bankruptcy boutique Pachulski Stang Ziehl & Jones and Houston’s Snow Pence Green snagged roles this week on the Chapter 11 case of Forbes Energy Services Ltd. in Corpus Christi.
Bankruptcy lawyers expect traditional brick-and-mortar retail businesses to continue to flounder, but hesitate to place that same prediction on the energy sector.
Energy companies entering Chapter 11 proceedings were perceived to be worth less than what they are worth now, something that Beltzer said indicates a rebound in the commodities market.
“It appears that the worst is over in terms of that sector,” Beltzer said.
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