Commercial Bankruptcy Declines Tied to Economy

A bankruptcy attorney is arguing that business bankruptcies have dropped to record low levels due to the huge amounts of cash that investors are putting into companies, not because of the ramifications of the 2005 bankruptcy reform law.

Richard Herzog Jr., an attorney with Nelson Mullins Riley & Scarbourough LLP, says that businesses’ current access to cash has more to do the nearly 50 percent decline in commercial bankruptcy filings that occurred from 2005 to 2006. Last year there were 19,696 commercial bankruptcy filings compared with 39,201 filings in 2005, according to the American Bankruptcy Institute.

“There is a relationship between an exceptional amount of investment capital/liquidity in the falloff in business bankruptcies because there is so much cash available to loan or invest and it’s all looking for a place to go and earn a return,” Herzog told the Atlanta Business Chronicle last week.

Herzog said that many firms would be going under without the benefit of this cash.

Congress passed new bankruptcy filing rules in 2005, driving many consumers to file before the law was implemented that October. The filings in 2005 set a record but dropped dramatically in 2006. The ABI reported a 70.3 percent decline in bankruptcy filings from 2006 compared to 2005.

Nelson Mullins is based in Columbia, S.C.