In the year 2012, bankruptcy filings totaled 40,075 for business filings, and 1,181,016 for non-business filings. This leads to a total of 1,221,091. In regards to non-business filings, of the 1,181,016, Chapter 7 bankruptcies accounted for 816,271, Chapter 11 accounted for 1,461, and Chapter 13 accounted for 363,280. Some interesting statistics to note are that total non business bankruptcies dropped from over 1.5 million in 2010 to just over 1.35 million in 2011, and as mentioned 2012’s non business bankruptcies totaled 1,181,016. It is a good sign for the economic recovery that bankruptcy declines have occurred for 2 straight years. The declines have also been consistently dropping between all 3 chapters. Chapter 7 non-business bankruptcy filings were 1,100,116 in 2010, the highest since 2005, however they dropped to nearly 800,000 in 2012. While the decline in non-business bankruptcies has not been so dramatic for chapter 11 and chapter 13, the numbers are still dropping from 2010’s total (American Bankruptcy Institute, 2014).
The decline in bankruptcies shows signs that the number of businesses who are “buried in debt” is beginning to subside. The goals of modern bankruptcy law are to provide relief to these debtors who have excessive debt, and to provide a fair means of distributing a debtor’s assets among creditors. Attempting to find the right balance between the rights of the debtor and the rights of the creditor is thus the overall objective of modern bankruptcy law. One major change in bankruptcy law occurred in 2005, when reform legislation was enacted as a way to, in part, require more consumers to pay as many of their debts as they could instead of having those debts fully relieved in bankruptcy (Clarkson, Cross, Miller, 2012). Clearly those who need these relief measures are dropping, which provides economic growth opportunities. There are measures that businesses can take to protect themselves from losses due to customer and client bankruptcies. One of these measures is to reduce the length of contract with customers, especially at-risk ones. Rather than signing a multi-year deal, a business may be better served to enter month-to-month contracts. Doing a thorough review of a business’ credit history should help determine if they are considered at-risk.
Also, customers who seek bankruptcy protection may be viewed as at-risk. In addition to reducing the length of contracts with at-risk customers, a business can require a deposit. For example, the attorneys at Metz, Lewis, Brodman, Must, and O’Keefe advise that if customers do not agree to 20 day payment terms, a deposit equal to the value of approximately 40-60 days of goods supplied could be required. The customer would then be invoiced for the amount needed to replenish the deposit account each month.
A third method a business can use to protect themselves from customer or client bankruptcy is purchase money security interest agreements. These agreements, once signed by financially distressed customers, give a company a security interest in all products sold to the customer, as well as proceeds from the sales of such products. Appropriate notice must be given to other secured creditor if the agreement is in fact signed (MetzLewis.com, 2008).
In the event that a business is faced with a debtor who has filed for bankruptcy, the business then needs to determine their next course of action. If the business is already attempting to collect on the balance and has brought forth a lawsuit with a set trial date, the business will want to review the bankruptcy filing by the customer. This allows them to find out what kind of bankruptcy is being filed, as well as other key pieces of information such as the deadline to file a claim with the bankruptcy court detailing what the business is owed from the customer. Not meeting the deadline means no chance of receiving any funds from the customer filing for bankruptcy (Brown, 2010). With the customer now filing for bankruptcy, it seems unnecessary for the trial date regarding the lawsuit to take place, as bankruptcy proceedings will have started. The business may want to do a cost benefit analysis to determine if the customer has any potential to pay the business back. Looking at the customers debts compared to their assets, as well as the number of creditors, and of course the balance due to the business will allow the business to make an informed decision on how many resources they would like to utilize to attempt to collect this debt (Brown, 2010). In regards to choosing a bankruptcy option, an individual or business needs to examine their unique circumstances. Often, there is no clear-cut answer. The example of a closely held corporation with 4 other shareholders in financial trouble is a great one. A lender has advised them that if their current debt load were reduced by 50%, they would have a chance of receiving funds from said lender. It’s specified that the corporation has some good contracts with anticipated profitable results over the next year, but a collective bargaining agreement with the employees may cause some headaches down the road. In my opinion, a chapter 7 bankruptcy filing, which is the most prevalent bankruptcy filing type, would not be in the best interest of the corporation. Chapter 7 bankruptcies are also referred to as “liquidation bankruptcies”. The bankruptcy trustee may sell some, if not all, of a corporation’s property to pay their debts. At the same time the bankruptcy trustee also cancels many, if not all, debts. With a Chapter 7 bankruptcy filing, the corporation would be giving the bankruptcy court all of the control over their property and debts. The corporation would not be permitted to sell any of the property that is owned or on file without the court’s consent (Michon, 2014). Chapter 7 is often viewed as “fresh start” for a business or individual. Since the corporation has been advised that they would need to reduce their debt load by 50%, not 100%, in order to be considered to be financed funds, and the fact that the corporation believes that they have profitable jobs lined up in the near future, it seems that a complete reset is not in their best interest. Since a full liquidation is not the best course of action for the corporation, that leaves either a Chapter 11 bankruptcy or a Chapter 13 bankruptcy. These two bankruptcies share many similarities. They both allow businesses to restructure their finances and continue with the running of their business. With either a Chapter 11 or a Chapter 13 bankruptcy, one can retain the property that is needed to run the day to day business operations, have sufficient time to sell assets that are no longer needed or can no longer be afforded, modify payment terms on secure debts, and eliminate obligations that cannot be paid over the plan term. Some discrepancies between the two bankruptcy filings is that Chapter 11 provides more flexibility, however the costs associated with it are usually far greater than those associated with a Chapter 13 filing. In addition, a Chapter 11 bankruptcy filing can take a far greater amount of time than a Chapter 13 filing. For these reasons, most small business owners who do not wish to liquidate their business opt for a Chapter 13 filing. Unfortunately in the case of the corporation in this example, they would not be eligible to file for a Chapter 13 bankruptcy due to the fact that they are a corporation. Chapter 13 is only available to individuals with regular income and to those small businesses that operate as a sole proprietorship (Maidman, 2014). This leaves Chapter 11 bankruptcy as the best option for the corporation. With a Chapter 11 bankruptcy, the debtor is granted four months to propose a reorganization plan. The court can also extend the period to as much as 18 months, so long as the debtor produces a showing of a good cause. With all of the restructuring of finances that occurs with a Chapter 11 bankruptcy, the debtor and the creditors are essentially forming a contract as to how the debtor will pay its obligations and operate its business in the future. So long as the corporation is able to provide that their restructured plan is feasible, in good faith, done in the best interest of their creditors, and fair & equitable, the plan should receive confirmation from the bankruptcy court (Maidman, 2014). Given the corporations circumstances with anticipated profitable jobs in the near future, and needing to reduce their debt load by 50% rather than 100%, I believe that the Chapter 11 bankruptcy filing serves the best interests of this corporation.

References
American Bankruptcy Institute (2014). Quarterly Business Filings by Year (1994 – 2013). Retrieved from http://news.abi.org/sites/default/files/statistics/ QuarterlyUSBusinessFilingsbyYear1994-2012_0.pdf
American Bankruptcy Institute (2014). Quarterly Non-Business Filings by Chapter (1994-2013). Retrieved from http://news.abi.org/sites/default/files/ statistics/Quarterlynonbusinessfilingsbychapter1994-2012.pdf
Brown, C (2010 Nov 22). 11 Things to Do When a Client Files Bankruptcy. Inc. Retrieved from http://www.inc.com/guides/2010/11/11-things-to-do-when-a-client-files-bankruptcy.html
Clarkson, K., Miller, R. and Cross, F. (2012). LAW 312 – Advanced Business Law. Mason, OH. Cengage Learning.
MetzLewis.com (2008). Protecting Yourself Against Loss If Your Customers File For Bankruptcy. Metz, Lewis, Brodman, Must, O’Keefe: Attorneys at Law. Retrieved from http://www.metzlewis.com/ %2Fmedia%2F20990%2Fprotect_against_loss-bankruptcy.pdf
Maidman, B. (2014). Chapter 11 Bankruptcy for Small Business Owners. NOLO: Law for All. Retrieved from http://www.nolo.com/legal-encyclopedia/chapter-11-bankruptcy-small-business-owners.html
Maidman, B. (2014). Chapter 13 v. Chapter 11 Bankruptcy for Small Business Owners. NOLO: Law for All. Retrieved from http://www.nolo.com/legal-encyclopedia/chapter-13-chapter-11-bankruptcy-small-business-owners.html
Michon, J. (2014). A Chapter 7 Bankruptcy Overview. NOLO: Law for All. Retrieved from http://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-overview-29571.html