Bankruptcy in the Wake of Katrina

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3 Responses

  1. The lack of a significant number of new bankruptcy filings in the ED of La. may hold true for consumer cases. But commercial concerns are a different story. They generally are not part of the diaspora, for any number of reasons. They will be buffeted over the coming months with increases locally in taxes, insurance premiums and utility rates, and with increased borrowing costs as a result of national trends. Due to a smaller population base in the New Orleans metropolitan area, many businesses will see much reduced income year over year. The increase in expenses and the decrease in revenues for many businesses likely will cause increased chapter 11 activity in the coming months, especially once the insurance and government monies dry up.

  2. Rafael Pardo says:

    Rudy – For the reasons you set forth, I too suspect that the impact of Katrina on businesses located in the E.D. La. will result in an increase in Chapter 11 filings. That said, I don’t think it’s accurate to say that commercial concerns “generally are not part of the diaspora.” In “The Myth of the Disappearing Business Bankruptcy,” 93 Cal. L. Rev. 745 (2005), Elizabeth Warren and Bob Lawless document how the AO statistics for business bankruptcy filings significantly undercount business bankruptcies. Specifically, the AO classifies the bankruptcy filings of many entrepreneurs, self-employed individuals and independent contractors whose undertakings have failed as nonbusiness filings. For example, Warren and Lawless found that 19.5% of Chapter 7 and Chapter 13 cases that were classified as nonbusiness filings showed evidence of a connection to an underlying business. If we pay attention to this class of individual in future studies, I suspect a sizable number of businesses in the E.D. La. will have experienced the diaspora effects I previously mentioned.

  3. Nick says:

    While we are on the subject of bankrupcty, it will be interesting to see how this entire sub-prime mortgage lending mess will shake-out in 2008 and 2009. Will Congress act to help-out those Wall Street firms that should have simply known better than to loan money to people that can’t afford to repay it? It should make for an interesting year!