SVB Financial Group, the one-time parent company of the failed Silicon Valley Bank, is filing for bankruptcy protection.
The company’s Chapter 11 bankruptcy petition Friday is another development in a banking crisis that’s shaken stock markets and applied pointed questions to banks’ financial health.
After bankruptcy cases dropped off during the pandemic, are they making a comeback?
In January, newly-filed consumer and commercial filings increased by 19% over the same period last year to 31,087. In February, they rose 18% to 31,889.
The data was compiled by Epiq Bankruptcy, a bankruptcy analytics division of Epiq, a legal technology services company, and the American Bankruptcy Institute, a professional organization for attorneys, accountants, judges, professors and others in the bankruptcy field.
“‘A strong job market is helpful for people. What’s more helpful is a job market that pays people salaries that keep up with inflation and keeps up with rising debt expenses.’”
— Pamela Foohey, a professor at the Cardozo School of Law
Bankruptcies eased off during the COVID-19 pandemic. There were 387,721 total bankruptcies last year, down from 413,616 in 2021, 544,463 in 2020 and 774,940 in 2019, according to separate data from the American Bankruptcy Institute.
But those figures are a far cry from the a Great Recession peak of 1,593,081 bankruptcies in 2010.
Tightening credit access and rising interest rates for businesses and consumers will likely hasten their return, bankruptcy experts say.
“You are seeing companies that are so sick, it’s unavoidable,” said Al Togut, partner at Togut, Segal & Segal, a boutique law firm specializing in corporate bankruptcy.
Companies that would otherwise be seeking bankruptcy protection are benefiting from liquidity in the financial system, Togut added. Liquidity refers to how easily it is to access cash, and/or buy and sell assets.
“That’s not to say they don’t need restructuring, because they do. And judgment day will come,” Togut added.
Pamela Foohey, a professor at the Cardozo School of Law where her specialties include consumer bankruptcy, echoed Togut’s sentiments, saying “judgment day” is also coming for consumers.
But that might take time. Consumers often regard bankruptcy as a last resort, and struggle to repay debts for two or three years before turning to bankruptcy court, she said.
Recent percentage increases in the numbers of cases might sound “dramatic,” Foohey said, but that’s because they are climbing off low numbers and still below pre-pandemic levels.
Types of bankruptcy
Common bankruptcies for people are a Chapter 7 bankruptcy, a liquidation of assets to pay debts, and a Chapter 13 bankruptcy, which relies on repayment plans.
A Chapter 11 bankruptcy — which is what SVB Financial is doing — enables businesses to restructure their debts.
A Chapter 13 installment plan for an individual is akin to a Chapter 11 plan for a business, Foohey explained. New cases dropped again in 2021 and 2022. Last year, there were roughly 380,000 newly filed cases, including the crypto exchange FTX.
The number of people seeking bankruptcy protection through Chapter 13 repayment plans last year jumped more than 30% year over year, according to the American Bankruptcy Institute.
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