Chapter 11 filings in the Southern District of Florida continue to trend downward. Since 2010, annual chapter 11 filings have declined by about 25%. The decline is consistent with the national bankruptcy experience.

Variety of factors contributing to decline in filings

To some extent, the current low filing rate is attributable to a robust local economy, particularly in the hospitality and commercial development sectors, leading segments of the South Florida economy. Generally speaking, however, the decline in filings is also fueled by other dynamics (less favorable) including delays in foreclosure proceedings putting off the need for bankruptcy relief; paucity of debtor in possession financing; prevalence of “bad boy” guaranties which makes borrower filings a Hobson’s Choice for guarantors; the requirement that “new value” plans of reorganization be market tested making insider exit strategies less predictable; and, complicated capital structures that make reaching consensus on an exit plan difficult.

After three consecutive years of similar declines in chapter 11 filings, perhaps that fact alone is not necessarily a key indicator of economic recovery. The decline in no small part may well be testimony that chapter 11 is no longer regarded as the best way to navigate through financial extremis.