Business Bankruptcy Filings Increased 7% in October

By ERIC MORATH Business bankruptcy filings jumped in October, reversing two consecutive months of declining commercial filings and indicating that bankruptcies could continue to rise as the economy struggles to stabilize. Last month, 7,771 businesses filed for bankruptcy protection, compared to 7,271 that sought shelter from creditors in September, according to new data from Automated Access to Court Electronic Records, or AACER, a private firm that tracks bankruptcy filings. After two months of decline, the 7% rise in commercial filings shows that businesses are still struggling to access financing and are facing weak demand for their products. "The margin for success is so thin that any financial hiccup" could cause a business to file for bankruptcy, said Jack Williams, a bankruptcy professor at the Georgia State University College of Law. The tight credit markets since 2008 "will only be exacerbated" with small-business lender CIT Group Inc.'s (CIT) Chapter 11 filing Sunday, he said. The hardest-hit industries continue to be real estate and retail, but weakness in those sectors trickles down to a number of other areas, including home building and manufacturing, Mr. Williams said. On a year-to-year basis, business bankruptcies shot up 24% in October compared with the same month in 2008. Mr. Williams called that increase "substantial" and said it is a bad omen for the final months of 2009 and the first quarter of 2010. "Bankruptcy filings are a lagging economic indicator so it's likely that we'll see bankruptcy filings increase for the next several quarters," he said. The first part of 2010 could bring another rash of retail-related filings as disappointing holiday sales may lead shops to seek protection from creditors, Mr. Williams said. Through the first 10 months of the year, 74,832 businesses filed for bankruptcy, a 16% increase from the same period last year. The total number of October bankruptcies, including both personal and commercial filings, increased 20% from the same month last year. The number of filings last month, 130,199, is the most total filings since March, and the second-highest figure recorded since the beginning of 2006.