Bankruptcy Trends in Dallas: What the Data Tells Us

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The bankruptcy process gives individuals and businesses the ability to resolve crushing debt and related financial difficulties. Debtors may file for liquidation bankruptcy, where they liquidate (sell) assets to make partial payment to creditors and obtain discharge of remaining debts, or reorganization bankruptcy, where debtors pay down debts under a court-approved plan. If you’re wondering whether filing for bankruptcy is the right choice in your situation, contact Toronjo & Prosser Law to schedule a consultation.

Rates of bankruptcy filings tend to increase during times of economic downturn or shock. With the recovery from the COVID-19 pandemic followed by some of the highest interest rates seen in decades, how have recent economic challenges affected bankruptcy trends in Dallas and the state of Texas? Furthermore, what can we expect in the coming months and years as we deal with inflationary pressure and ongoing economic risks that might trigger a recession?

The Current Landscape of Bankruptcy in Dallas and Beyond

According to the Administrative Office of the U.S. Courts, during a recent fiscal year, 7,983 bankruptcy cases were filed in the U.S. Bankruptcy Court for the Northern District of Texas. These cases included 3,951 Chapter 7 cases, 152 Chapter 11 cases, and 3,869 Chapter 13 cases. Business bankruptcy filings totaled 609, including 432 Chapter 7 cases and 147 Chapter 11 cases. Nonbusiness filings totaled 7,374 cases, including 3,519 Chapter 7 cases and 3,850 Chapter 13 cases. 

Nationwide, bankruptcy filings for the same fiscal year totaled 433,658 cases, including 248,680 Chapter 7 filings, 6,473 Chapter 11 filings, and 178,214 Chapter 13 filings. Business bankruptcies totaled 17,051, with 9,435 Chapter 7 cases and 1,228 Chapter 13 cases. Nonbusiness filings totaled 416,607, including 239,245 Chapter 7 cases and 176,986 Chapter 13 cases. 

Analyzing Trends in Bankruptcy Cases

The Administrative Office of the U.S. Courts reports that total bankruptcy filings in the U.S. increased by about 12.5 percent during the same recent federal fiscal year. Business filings increased by approximately 23 percent, and nonbusiness filings increased by about 11 percent. All types of bankruptcy filings went up after nearly 20 years of decreases in filings. 

According to the Wall Street Journal, bankruptcy courts in Texas saw about 40 percent of nationwide Chapter 11 filings during the first six months of the same year, making the state the biggest location for restructuring companies. 

Industry-Specific Corporate Bankruptcy Trends

With interest rates remaining high and posing an ever-present specter of triggering a recession, industries reliant on financing and companies in the consumer space may face the highest bankruptcy risks. In addition, companies that ramped up capacity in response to the unique demands of the COVID-19 pandemic make up a sizable portion of recent bankruptcy filings.

Examples of companies that sought bankruptcy during the recent fiscal year include American Physician Partners LLC, an emergency room physician staffing company, telemedicine provider Up Health Services, Inc., and airline charter and maintenance company Aerotech Miami. Other companies noted by analysts as potentially ending up in bankruptcy include multiple retail businesses, likely due to reduced personal savings and high interest rates putting a crunch on consumer spending. 

The Pandemic’s Influence on Bankruptcy Filings

The COVID-19 pandemic caused historic economic shocks and has had lingering aftereffects that influence rates of bankruptcy filings. Stay-at-home orders put countless companies out of business despite significant stimulus efforts by the federal government, such as the Paycheck Protection Program and Economic Injury Disaster Loan program.

However, individual stimulus checks and reduced consumer spending during the first year of the pandemic significantly boosted personal savings for many people. When businesses started reopening, many people used their savings to satisfy pent-up demand, causing a significant spike in consumer spending that resulted in a historic rise in interest rates. However, interest rates have put new economic pressures on individuals and businesses, especially for companies that failed to adjust their operations and capacity as the pandemic wound down or are reliant on affordable financing.

Legal and Regulatory Developments

Texas has become a popular destination for corporate restructuring bankruptcies, mainly due to the perception of Texas as a business-friendly state for corporations seeking to shed unmanageable liabilities. However, recent legal developments in other jurisdictions may put these perceptions to the test.

Johnson & Johnson recently announced plans to move a subsidiary created to hold the company’s talc powder mass tort liabilities to Texas after the bankruptcy court in New Jersey rejected two attempts by the company to shed those liabilities through bankruptcy. Rejection of a third attempt by a Texas bankruptcy court may cause corporations facing financially crippling mass tort or class action liability to reconsider the viability of bankruptcy as a means of eliminating potential judgment liabilities without the time, expense, and poor public relations associated with litigation.

Looking Forward

Continued high interest rates will likely put financial pressure on businesses and individuals, especially as personal savings and corporate financial reserves diminish due to high costs. As more people and companies struggle with increasing debt and liabilities, bankruptcy filing rates may continue to rise.

In addition, ongoing economic difficulties may trigger a recession, likely accelerating the increase in bankruptcies in Dallas and throughout the country. Other economic emergencies, such as a prolonged federal government shutdown or a failure to raise the U.S. debt ceiling, can shock the system and push people and businesses into bankruptcy.

However, if fiscal and monetary policies do not trigger a recession and interest rates can begin to come down as inflationary pressures subside, we may see only slight continued increases or a plateauing of bankruptcy filings. 

Contact a Bankruptcy Attorney Today

Barring significant positive economic changes, we may see a continued increase in bankruptcy filings in Dallas. If you’re considering filing for bankruptcy in Dallas, talking to an experienced attorney can help you understand your legal options and clarify the path to resolving your financial difficulties. Contact Toronjo & Prosser Law today for a free, confidential consultation with a knowledgeable bankruptcy attorney. We’re prepared to assist you in pursuing solutions for your financial problems and getting a fresh start.