The deepening international financial crisis and tightening credit market has led to a substantial increase in business bankruptcy filings. While the number of commercial bankruptcies has been increasing since 2007, business chapter 11 filings surged to even higher levels in the third quarter of 2008. In Delaware and the Southern District of New York, where many commercial cases are filed, business chapter 11 filings more than quadrupled from just over 100 in the third quarter of 2007 to almost 450 in the third quarter of 2008. Overall, business bankruptcies rose sixty-seven percent (67%) in September 2008 from the prior year.
Businesses dependent upon consumer spending, including retail, were among the hardest hit, with well known chains such as Mervyns, Linens 'n Things, Sharper Image, Mattress Discounters and Goody's filing for bankruptcy protection this year. As the troubled economy continues to limit consumer spending on dining out, many businesses in the food service industry were also forced into bankruptcy. Buffet Holdings, Inc., the parent company of several restaurant chains, including the Old Country Buffet, filed a chapter 11 bankruptcy petition earlier this year. The parent company of both Bennigan's Grill and Steak & Ale filed for chapter 7 bankruptcy protection, closing hundreds of restaurants in what is considered to be one of the largest restaurant chain filings in recent times.
In addition, financial giants Lehman Brothers, Washington Mutual and IndyMac Bankcorp became casualties of the financial meltdown, filing the two largest bankruptcy cases of all time in September 2008 and the tenth largest bankruptcy case in July 2008.
Construction companies and real estate developers across the nation likewise sought bankruptcy protection in staggering numbers, due in large part to the increased cost of materials and declining housing markets.
With the financial markets in turmoil, the increase in chapter 11 and other business filings is likely to continue. Few industries will be immune from the problems associated with the downturn in the economy. Now more than ever, it is important that businesses and individuals seek advice from counsel in order to understand their rights in commercial bankruptcy cases. By taking an active role in the bankruptcy proceedings, creditors and other interested parties can preserve their claims and play a role in shaping the outcome of the bankruptcy proceeding.