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ON THE DECLINE: John Q. Hammons Hotels & Resorts, above, was among bankruptcy filings in 2016, though figures throughout the Springfield metro area, below, fell to 890.
ON THE DECLINE: John Q. Hammons Hotels & Resorts, above, was among bankruptcy filings in 2016, though figures throughout the Springfield metro area, below, fell to 890.

The Bankruptcy Cycle: Trends hinge on economic, political pressures

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In a year when one of Springfield’s most well-known companies filed for Chapter 11 reorganization, bankruptcies on the local, state and national levels conversely trended downward.

John Q. Hammons Hotels & Resorts listed assets and debts each of more than $1 billion when it filed for bankruptcy in June. The proceedings that halted litigation by former investor and rival Jonathan Eilian are still in progress as lawyers scan through creditor and legal documents. Dominating corporate bankruptcies last year were energy companies, including St. Louis firms SunEdison Inc. and Peabody Energy Corp., as well as companies such as Sports Authority Inc.

Local experts say overall falling bankruptcy filings are proof of an economy continuing to recover from the Great Recession, lenders loosening their stance on debt and heightened political pressures.

Filings in federal bankruptcy courts dropped 6 percent to 794,960 in 2016 from 844,495 in the prior year, according to USCourts.gov. Following the national trend was Missouri, where filings decreased 2 percent to 18,380.

The five counties that make up the Springfield metropolitan statistical area fell overall, with two exceptions.

Greene County led in filings, at 613 last year, but it was down 8.8 percent from 2015. Other decreases in the Springfield MSA were Polk County at 25 percent and Dallas County at 20 percent. The outliers were Christian County, which posted a 3.5 percent bump in bankruptcy filings to 205 in 2016, and Webster County’s 6.7 percent increase to 64 filings.

The Queen City metro area as a whole was down 6.7 percent to 948 in 2016 from 1,016 in 2015, according to the federal data.

Debt demystified
While bankruptcy attorneys Dan Nelson and David Schroeder typically work for clients on the opposite ends of the spectrum, they have similar views on the causes behind the reductions.

A partner with Lathrop & Gage LLP, Nelson said bankruptcies, like the economy at large, tend to be cyclical.

On the national level, bankruptcy filings last year were the lowest they’ve been since 2006, and 2016 marked the sixth straight year of decreases, according to a news release from the U.S. Courts system.

Nelson said continued decreases are correlated to the recession, pointing to the most recent high of 1.6 million bankruptcies in 2010. Once parties file for bankruptcy, they can’t again for six years, though he said repeat filers are a small subset of the total. What’s more impactful are current societal issues, he said, and bankruptcy fluctuations typically run on five- to eight-year cycles.

“I’ve been doing this for over 30 years; things improve and then they get worse and then they improve,” said Nelson, who primarily represents creditors. “If interest rates remain low and banks continue to lend, and unemployment is decreasing and if it continues to do so, I don’t think you’ll see a significant increase in bankruptcies.”

Schroeder, who represents debtors in bankruptcy proceedings, pointed to pressures caused by the most recent election season.

Lenders, he said, have taken a wait-and-see approach as opposed to a more aggressive stance when it comes to debt recovery.

“It may have created a psychological excuse to kick the can down the road,” said the owner of David Schroeder Law Offices PC.

The attorneys also observe a trend among lenders seeking alternative measures rather than pushing for bankruptcies – specifically offering extensions and loan modifications.

“It’s not uncommon that you find a thread that you can present to the banker and make it be a win-win solution,” Schroeder said. “Lenders are willing to listen to a proposal if it makes economic sense for them. More often than not, they may give the borrower a second chance with modified terms.”

Conversely, a foreclosure, repossession or lawsuit can be a driving force causing an individual or business to go down the bankruptcy path. Business filings accounted for 2 percent of total Springfield MSA filings in 2016.

Nelson said overall, he worked on 50 bankruptcy cases in 2016, which was down slightly from the prior year. He cited the improving economy, but also lenders willing to work things out.

“That can go a long way toward avoiding a bankruptcy,” he said.

But will it last?
While U.S. bankruptcy filings were down in 2016, last year marked the first time since 2011 when the annual decline was less than 10 percent, according to USCourts.gov.
 
Nelson tempered the latest numbers with uneasiness surrounding potential economic factors under the Trump administration.

One potential problem industry, he said, is agriculture, due in part to President Donald Trump and others seeking to renegotiate the North American Free Trade Agreement and the Trans-Pacific Partnership.

“The economies overseas, when they experience difficulties, buy fewer goods and services from the United States,” Nelson said.

As for this year, it may be too early to tell, according to data from the American Bankruptcy Institute.

In January, filings increased by 5 percent to 55,212, but February filings dropped 10 percent to 58,336 compared with the same month a year earlier, according to the organization.

“If the economy worsens, and eventually it will, you’re likely to see more bankruptcies,” Nelson said.

While Schroeder said businesses and individuals should only consider bankruptcies as a last resort, he concedes the parties involved may need to start out fresh.

“Sometimes it’s inevitable,” he said.

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