According to an article in Business Week, the number of business bankruptcies have increased by 40% in May and there are no signs that the bankruptcy numbers will decline anytime soon. More than 100,000 American companies have filed bankruptcy since the recession began 18 months ago. That’s one in every 270 American businesses in bankruptcy. The combination of sagging sales, contracting credit and inflexible creditors are sending more and more businesses to bankruptcy. Not all of them are filing Chapter 11 bankruptcy; many are liquidating in Chapter 7 bankruptcy as creditors become less willing to negotiate.
The article said:
“Today lenders-meaning banks-have much less patience for a traditional Chapter 11 reorganization, no matter what size the case,” says Indeed, “The vast majority of business bankruptcies are Chapter 7 liquidations, in which the company ceases operations and its assets are sold to pay off lenders.”
Many creditors fear that the economy may not turn around anytime soon, so they want to get as much money as possible by liquidating the debtor’s business assets. Many reason that it’s better to get some of their money now, than to wait for a company to emerge from restructuring in Chapter 11 bankruptcy and maybe receive less money. Also, many creditors are under extreme financial stress and simply can’t afford to have patience with companies that may not survive the recession.