Recent Bankruptcy Trends

As many bankruptcy and restructuring participants are all too aware, the recent expansion of the United States economy has created a significant decrease in financial restructurings, defaults and Chapter 11 filings. Based on Standard & Poor's estimates, corporate default rates were just 1.6% last year, compared with a recent high of 10.51% in 2001. Relatively low interest rates, relaxed lending terms and the increasingly competitive financing environment created by the proliferation of new, non-traditional funding sources have kept many companies afloat that, just a few years ago, surely would have found themselves either negotiating with creditors or heading into Chapter 11. But the era of 'easy money' may be coming to an end soon, as there are signs of increasing economic pressure in certain sectors of the economy. At the same time, the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the principle provisions of which became effective in October 2005, is fundamentally changing certain aspects of the Chapter 11 process. Although no one is able to predict with certainty what will happen in the restructuring field in the near future, below are some of the signs that the bankruptcy field is about to undergo a substantial change.