Bankruptcies of individual debtors up 30% in one year

Written by Abraham Galvan on April 12, 2022

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Unusual times continue for Miami-Dade businesses and personal bankruptcy cases.

Contributing factors pushing local small businesses to file for bankruptcy include rising interest rates, supply chain issues, inflation issues and global instability, said senior managing director Joseph Luzinski. by Development Specialists Inc.

“Not only is the cost of assets to run a business going up, but the cost of financing is also going up,” he said. “I think a lot of businesses have been hanging on to their nails, and without additional government money, businesses will inevitably be more likely to fail.”

In the wake of the pandemic, the 2020 CARES Act temporarily increased the Chapter 11 Subchapter V debt limit from $2.7 million to $7.5 million, with the goal of allowing small businesses whose debt exceeds previous debt limits qualify for reorganization under the Small Business Reorganization Act.

“It was faster and easier for smaller companies to come in and reorganize theoretically more efficiently,” said Michelle Hendler, partner and co-chair of the creditor rights practice group at law firm Shutts & Bowen.

In March, the temporarily increased Chapter 11 Sub-Chapter V debt limit expired and the debt limit is now back to where it was originally at $2.7 million, a- she declared. Comparing this time to last year, Chapter 11 filings are down 16%, Chapter 7 filings are also down 34%, while Chapter 13 cases are up 30%.

Chapter 7 provides for the sale of a debtor’s non-exempt assets and the distribution of the proceeds to creditors, according to the US Courts website.

Chapter 11 provides for reorganization, usually involving a corporation or partnership, and Chapter 13 is for the adjustment of debts of an individual with a regular income and the debtor can retain ownership and pay over time.

Credit card debt is the real key that drives many consumer bankruptcies, Luzinski added.

“Consumers are likely leaning more toward bankruptcy as their debt increases or their credit card debt increases based not necessarily on new purchases but on interest rate carry,” he said, ” but I would say the business side is probably a bit more risk for much higher bankruptcy activity than the consumer side.