The Great Recession began in December of 2007, and its effect on business operations led to increased cash flow problems for commercial entities. In turn, that led many companies to file for bankruptcy protection to either weather the storm or cease operations in an orderly and realistic manner. Now, for the second straight year, business bankruptcy filings in New Jersey have fallen, this time to the lowest levels since 2008. But that still represents an increase of about 50 percent over the figures for 2007. What does it all mean?
It is helpful to put the statistics in context. Some observers point to the cyclical nature of business bankruptcy in order to make sense of the figures. Small businesses were the first to experience the financial difficulties brought on by the recession. When those troubles multiplied, commercial rents were left unpaid. That threatened the landlords who catered to business tenants, which in turn will likely threaten the companies that do business with the landlords.
Most commentators do not believe the economy is yet out of the woods. Rather, they say other factors explain the recent drop in filings. One theory is that it is a reflection of a creditor philosophy aptly coined “delay and pray.” The term describes creditors that have opted to increase credit terms for troubled entities in the hope that the debtor will emerge from financial hardship.
Others say the credit markets for small businesses remain tight and competitive. Some relief on pressure was gained by negotiating out-of-court settlements, as creditors called in loans or refused to renew lines of credit. But that type of relief does not necessarily address the underlying problem, leading some to say that the next wave of business bankruptcy filings is just around the corner. While it remains to be seen if the recent drop in filings will contribute to a jumpstart of the economy, the fact remains that bankruptcy protection still offers an important and viable alternative to those entities in Camden County and throughout New Jersey who continue to suffer from financial difficulties.
Source: The Record, “Business bankruptcies fall 16 percent in NJ,” Hugh R. Morley, Jan. 31, 2012