People in Massachusetts and other states may think that a large number of bankruptcy filings means the economy is not doing well. According to reports, Chapter 11 filings for bankruptcy have risen by nearly 22 percent this year when compared to last year, and many of the Chapter 11 bankruptcy filings have been completed by energy companies. However, some say these filings may actually indicate that the economy is doing well in the United States.
When the economy is bad, companies will simply stop paying their bills. However, when the economy is good, companies might be in much better positions to complete the process of filing for Chapter 11 bankruptcy. The complex process involves multiple steps, particular with Chapter 11, and many companies would not attempt it if they were not financially strong enough to handle it.
When the economy is in a decline, a company might not have adequate funds to finance Chapter 11 litigation, which may last months or even years in some cases, to safeguard itself against the foreclosure of its operations. Between January and mid-October of this year, more than 130 Chapter 11 filings were made from companies that held assets totaling $25 million or more. A whopping 53 of these petitions came from environmental-services and energy companies. At the same time, the United States economy is predicted to grow by almost 2 percent this year, and the nation’s unemployment rate dropped to 5 percent in the month of September.
Sometimes, a company’s liabilities end up surpassing its assets in the state of Massachusetts for a variety of reasons — for example, a drop in sales due to a sluggish economy. However, with Chapter 11 bankruptcy, a company can reorganize its business. Proper legal guidance may help a company to navigate this process and finally address its debt problems in a manner that is in its best interest.
Source: thestreet.com, “Energy Companies Lead 22% Rise in Chapter 11 Filings“, Lindsay Rittenhouse, Oct. 24, 2016