Chap. 11 Bankruptcies Spike 63% From Year Ago
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.