US Chapter 11 commercial insolvency filings register 78% growth in September

The number of Chapter 11 commercial business insolvency filings in the US continues to see a sharp jump as Covid-19 pandemic wrecks businesses, data released by American Bankruptcy Institute showed.

In September, the number of Chapter 11 commercial filings rose 78% to 747 in 2020 compared with 420 in the same month last year. This is the biggest monthly rise in bankruptcy filings this year. Earlier, the number of cases in January this year increased 72% to 631. This was followed by a 20% drop in February.

However, overall September 2020 business filings were 2,677, a decrease of 16% compared to the 3,190 business filings in September 2019. Total US filings registered 39,701 in September 2020, down 35% from last September’s total of 61,156. The 37,024 consumer filings in September represented a 36% decrease from the September 2019 consumer total of 57,966.

In the first nine month of 2020, the number of Chapter 11 commercial bankruptcy filings was 5529 against 4148 in 2019, registering a one-third growth year-on-year. This is the sharpest year-on-year jump recorded in January-September period in the past nine years.

Commercial bankruptcy is filed under Chapter 11 of the bankruptcy code. In chapter 11, one may continue to operate the business, but the creditors and the court must approve a plan to repay the debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.

Total US bankruptcy filings decreased 28 percent during the first nine months of the year, as the 420,048 filings dropped from the 580,625 filings in 2019. The 394,618 total noncommercial filings through the first three quarters of 2020 also represented a 28 percent decrease from the noncommercial filing total of 551,082 through the first three quarters of 2019. Commercial bankruptcy filings during the first nine months of the year decreased 14 percent to 25,430 from the 29,543 filings during the same period in 2019.

The average nationwide per capita bankruptcy filing rate for the first nine calendar months of 2020 (Jan. 1-Sept. 30) decreased slightly to 1.81 (total filings per 1,000 population) from the 1.84 rate for the first eight months of the year. The average daily filing total in September 2020 was 1,891, a 25 percent decrease from the 2,527 total daily filings registered in September 2019. 

In Chapter 7, any property of value will be sold or turned into money to pay the creditors. The debtor may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.

In Chapter 13, the debtor can usually keep her property, but she must earn wages or have some other source of regular income and she must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from debtor, pay the creditors, and make sure she lives up to the terms of your repayment plan.