Chap. 11 Bankruptcies Spike 63% From Year Ago

Authored by Wolf Richter via WolfStreet.com,

Highest level since April 2011. It’s not just the Brick & Mortar Meltdown anymore.

New Chapter 11 bankruptcies in the US spiked 63% year-over-year in March to 770 filings, the highest number of filings for any month since April 2011 (when there had been 789 filings as companies were still trying to emerge from the Great Recession).

This chart shows Chapter 11 filings back to 2011, based on data from the American Bankruptcy Institute. The last six Marches are marked with red dots. The year-over-year jump of 299 filings in March is the second largest year-over-year jump for any month since the Great Recession. It is behind only the jump of 366 filings last December, which had set a post-recession record. The yellow dots represent the last six Decembers (more on that in a moment):

A company files for Chapter 11 bankruptcy protection from creditors in order to try to restructure its debts under the supervision of a judge. This normally involves are large reduction in debt and the transfers of part or all of the ownership of the company from pre-bankruptcy owners (shareholders) to creditors. Most often, shareholders lose everything. Some unsecured creditors too lose everything. Secured creditors are often made whole. And many creditors in between get a haircut, in return for some ownership. The hope is that the company can “emerge” from bankruptcy with less debt and keep operating.

Bankruptcy filings are seasonal and usually peak in April, along with tax season. So the March jump doesn’t augur well for April.

The low points in Chapter 11 filings normally occur late in the year, before or in December, except last December when filings spiked 61% from November, to the highest level for any month since April 2013. In March, it got worse when Chapter 11 filings spiked to the highest level for any month since April 2011.

While the December 2017 spike was truly special, in January and February, filings were close to where they’d been a year ago, and I thought, OK, maybe December was just a blip. But now there’s the March spike, the second highest spike since the end of the Great Recession.

The chart below shows the year-over-year change in Chapter 11 filings. This eliminates the effects of seasonality. Red bars indicate that filings rose from a year ago. Blue bars indicate that filings fell from a year ago. Note the effects of the oil-and-gas bust in 2015 and 2016 and more recently the effects of the brick-and-mortar meltdown; but now it’s not just the brick-and-mortar meltdown anymore:

Monthly Chapter 11 filings are volatile. To smoothen out the volatility and eliminate the effects of seasonality we can look at the year-over-year changes as a three-month rolling average. For example, the three-month average year-over-year change for March is based on January, February, and March. And then the image becomes clear: There is a problem, and it’s not a blip:

The by now well-documented Brick-and-Mortar retail meltdown is responsible for part of it. Retailer bankruptcies of all sizes have been piling up in large numbers since 2016. They all started out as Chapter 11 filings, though many of them later turn into messy liquidations, like Toys ‘R’ Us.

Back on January 8, when I discussed the horrendous spike in Chapter 11 filings in December, I figured that there must have been another cause. The economy is doing OK. In Q4, it was stronger than it had been in prior years, when bankruptcies were much lower. And retailer bankruptcies alone wouldn’t cause that kind of spike. I speculated that that the advent of the new tax law had a lot to do with it.

Creditors and shareholders of failing companies knew that they could write off losses in 2017 under the old corporate tax rate of 35%, thus getting the government to pick up 35% of the tab of their losses via lower taxes. In 2018, the new tax law adds uncertainties, but shareholders and creditors knew that losses incurred in 2018 would face the new corporate tax rate of 21%, and so the government would only pick up 21% of the losses.

But in March, this logic no longer applies. So it looks like the December spike was a mix of tax consideration and a sharply deteriorating credit environment for companies.

This is a sign that the economy has arrived at the end of the “credit cycle.” The Fed is trying to push up interest rates and tighten financial conditions. Weak companies are starting to have a harder time refinancing their debts. And those that succeed face higher borrowing costs. Some sectors are getting hit harder than others, such as brick-and-mortar retail, which had a terrible March. But this is now spreading in other sectors, such as specialized subprime auto lenders.

Subprime auto-loan delinquencies have surged to the highest rate since October 1996. Scores of smaller specialized lenders have piled into this field after the Financial Crisis, some of them backed by private equity firms. Three of them have now collapsed into bankruptcy or were shut down. Allegations of fraud and misrepresentations are swirling through the bankruptcy filings. Read…  Subprime Carmageddon: Specialized Lenders Begin to Collapse

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Comments

Kafir Goyim El Oregonian Thu, 04/12/2018 - 17:44 Permalink

The economy is strong, I'm told, and I'm sure they would never lie to me.  Can't wait to see how many BRs when it really starts to tank, if we're already at 2011 levels.

Damn, house and cars are paid off and I never carry CC debt.  I'm stupid not to borrow a bunch of money, buy gold, and declare BR.  Don't care about my credit if I never use it.  Should join the party.

In reply to by El Oregonian

Kafir Goyim Cassandra.Hermes Thu, 04/12/2018 - 17:56 Permalink

Man, that tax cut really burns dems ass, doesn't it?  How DARE we refuse to cheerfully carry the burden that socialists have saddled us with.  That's blasphemy to you, isn't it.  He should have cut your programs at the same time of course, to preserve the dollar, but he didn't.

To be fair, the conservative have become as bad as the socialists, spending wise, but at least they feel guilty about it.  Socialists just cock the gun and tell you to "give more".

In reply to by Cassandra.Hermes

brushhog Ntoxic8ingWave Thu, 04/12/2018 - 19:31 Permalink

Prediction....they impeach Trump, markets tank 50%, the economy implodes never to see the light of day again, America fractures, faith evaporates, massive bank failures, defaults, riots, armed skirmishes, blackouts, .....etc. It will be an event that lives in infamy forever.

In reply to by Ntoxic8ingWave

Neochrome Thu, 04/12/2018 - 17:32 Permalink

President does it. Everybody does it. It's the New American Dream, spend it all, get as much credit as you can, credit cards, loans, mortgages, when it all comes down start all over again.

 

Giant Meteor Neochrome Thu, 04/12/2018 - 17:51 Permalink

Well last I heard, post 2008 so many folks got broke, had shit scores, something had to be done, So the scores got jiggered a bit. Still, the income don't add, and let's face it, some folks DO learn their lesson. One only needs so many flat screen tv's and plastic shit fuck boxes, with the 7 year $50,000 pickup in the drive ..

20% student loan defaults eh? Talk about an expensive lesson ..

Fuck debt. Starve the fucking beast, anyway one can ..

In reply to by Neochrome

Neochrome Giant Meteor Thu, 04/12/2018 - 18:25 Permalink

https://www.marketwatch.com/story/a-good-run-for-credit-cards-may-be-wi…

The average debt of cardholding consumers increased 9% over the last two years, according to the CFPB. That could be a mixed bag; it might mean consumers are overspending, and at risk of default. Or it might mean they are optimistic about their future income. But cardholders with low credit scores have seen their balances increase at faster rates. And cardholders with deep subprime scores — those predicted to have the most trouble avoiding late payments — have seen a 26% increase in their average credit card debt over the last two years, the CFPB says.

In reply to by Giant Meteor

karenm Thu, 04/12/2018 - 17:36 Permalink

"Booming economy"

"Lowest unemployment ever"

"Retail sales rebounded"

 

Yes, after thousands of stores closed, along with many other non-retail businesses, I'm sure retail sales "Rebounded" and unemployment is lowest in decades....

 

He says " The economy is doing OK. "

 

You see folks, even these guys who tell us more truth, still add lies. The best lies are lies mixed with truth, because any idiot can detect 100% lies. Put yourself in their shoes. You want to lie to people, make them think all is well, but you can't hide parts of the collapse, like retailers going bankrupt. 

 

So what do you do? You tell a partial truth, then filter in some subtle lies to buffer it. These people aren't stupid, but you are if you think they're linear thinking, one dimensional liars who don't have enough brain cells to be able to tell a good, believable lie. In fact, they're professional liars.

 

Understand this, realize that they aren't playing, they're dead serious about their deceptions. 

soyungato Thu, 04/12/2018 - 17:39 Permalink

Since we are broke, we might as well go to war to divert the serfs's attention. There will be war. Trump does not dare to disobey Natanyahoo what with how weak his position is at this point - attack from both parties, surrounded by neocons and losing most of his base. The hesitation to attack is mostly due to the realization by the generals that it is a real risk the war can get out of control since now they have no idea how a cornered Russia may react. If Russia shoot down a plane or two how will the US react, escalate or backdown. The problems is, fucking evil Israel wants badly the US to get in there to fight. May god help us. However there is no God, the continue abuse and slaughter of the middle eastern people by Israel is an indisputable proof.

Richard640 soyungato Thu, 04/12/2018 - 19:39 Permalink

JOOS ON THE BRAIN=A WORLD-WIDE OBSESSION---20 MILL JOOS V.S 7+ BILL NON-JEWS?? WHY THE FOCUS ON THIS MICROSCOPIC MINORITY??---IT'S AN OBSESSION!@!!! GET A FUCKING LIFE U SPAWN!

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THE KING OF DENMARK-AFTER WW2--WAS ASKED WHY HIS PEOPLE SAVED SO MANY JEWS

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HIS RESPONSE="UNLIKE THE GERMANS, WE NEVER HAS AN INFERIORITY COMPLEX REGARDING THE JOOS"--GOT THE PICTURE U FILTHY JOO HATER DRAPING YOURSELF IN "FAIR AND EVEN-HANDED CRITICISM" OF THE JOOS...YA FILTH

+++++++++++++++++++

U CAN CREDIT THE KRISTIAN CHURCH FOR THE 2000 YR TEACHING OF CONTEMPT FOR THE JOOS IN THE DISGUSTING ANTI-JOO SCREED KNOW AS THE NEW TESTAMENT--A PACK OF LIES DEVISED BY THE PROMOTERS OF THE NEW RELIGION TO DIFFERENTIATE THESELVES AND PROMOTE THEIR LIES TO THE GENTILES--THERE A WHOLE FIELD OF STUDY DEVOTED TO THIS PROBLEM===

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In reply to by soyungato

Giant Meteor Thu, 04/12/2018 - 17:42 Permalink

Servicing massive debt without benefit of new customers only goes so far ..

That priviledge only reserved for the big players .. whom interestingly enough. own the joint ..

Muppet Thu, 04/12/2018 - 18:27 Permalink

Feb18, I closed a viable small biz ($1M/yr) due to family issues.  Presumed someone would buy (<$200k) and continue the viable business. 

Lots of interest but no one has any money.

Banks no help because they need their funds to make their own profits.  Banks have nothing for others profit.

platyops Thu, 04/12/2018 - 23:32 Permalink

Ever notice how many homeless people there are now? What do you think is the cause of this atrocity? Too much greed and not enough care for our fellow man. God gives us free choice and I am afraid we are not pleasing to God with what we have done with that gift.