Many economists are claiming that the credit crunch is slowing and the housing market improving but the number of bankruptcies is not reflecting these claims. Bankruptcies can be filed by individual or businesses as a way to protect them against any further debt, repossession, and foreclosure. While not preferable for many individuals, businesses are known to file for bankruptcy in an effort to restructure and reorganize.
Filing for Chapter 11 bankruptcy is a way of staying in business while reorganizing its debt obligations. The business will then pay the creditors back over a determined period of time. Even though the company is still in business share holders are still negatively impacted.
Business bankruptcies are just another symptom of the credit crunch caused by the mortgage crisis. Often times the businesses that file of bankruptcy in times of financial difficulties are the ones depending upon the disposal income of its consumers. Tropicana Entertainment has joined a number of companies who have filed for Chapter 11 bankruptcy in the past few months since their customers do not have the cash to spend at the casinos which Tropicana Entertainment owns.
Small businesses were the first to file bankruptcy caused by the current economic crisis followed by the larger institutions. While it is possible to recover from a Chapter 11 bankruptcy many of the mom and pop establishments have to shut down due to the action. With the introduction of the stimulus package checks many financial experts are expecting a surge in consumer buying which may save many businesses facing the possibility of bankruptcy.
Others are more skeptical, however, citing high gas and food prices where they believe many of the checks will go towards.
The fact is that the number of bankruptcies have risen 37% for both businesses and individuals as the economy continues to falter. Bankruptcies for businesses and other commercial ventures rose 56% from a year earlier illustrating the continuing problem.
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