The company's Chapter 11 bankruptcy filing on Friday is another development in the banking crisis that has roiled stock markets and raised questions about the banks' financial health.
After Bankruptcy Cases Were Down During the Pandemic, Are They Making a Comeback?
In January, newly filed consumer and commercial filings increased 19% to 31,087 compared to the same period last year. In February, they grew by 18% to 31,889.
The data was compiled by Epic Bankruptcy, a bankruptcy analysis division of Epic, a legal technology services company, and the American Bankruptcy Institute, a professional organization for attorneys, accountants, judges, professors and others in the bankruptcy field.
,‘A strong job market is helpful to people. What is more helpful is a job market that pays people salaries that keep pace with inflation as well as rising debt costs.,
Bankruptcies eased during the COVID-19 pandemic. Last year there were 387,721 total bankruptcies, down from 413,616 in 2021, 544,463 in 2020 and 774,940 in 2019. separate data From the American Bankruptcy Institute.
But those figures are a far cry from the Great Recession peak of 1,593,081 bankruptcies in 2010.
Bankruptcy experts say increased credit access for businesses and consumers and rising interest rates will accelerate their comeback.
“You're going to see companies that are so sick, it's inevitable,” said Al Togut, partner at Togut, Segal & Segal, a boutique law firm specializing in corporate bankruptcy.
Togut said companies that would otherwise be seeking bankruptcy protection are benefiting from the liquidity in the financial system. Liquidity refers to how easily it is to access cash and/or buy and sell assets.
“That's not to say they don't need restructuring, because they do. And the day of judgment will come,” Togut said.
Pamela Fuhe, a professor at the Cardozo School of Law where her specialties include consumer bankruptcy, echoed Togt's sentiments, saying “Judgment Day” is coming for consumers as well.
But this may take time. He said consumers often view bankruptcy as a last resort, and struggle to pay off debts for two or three years before going to bankruptcy court.
Fuhe said the recent percentage increase in the number of cases may seem “dramatic,” but that's because they are climbing low numbers and are still below pre-pandemic levels.
types of bankruptcy
Common bankruptcy filings for individuals are a Chapter 7 bankruptcy, liquidating assets to pay off debts, and a Chapter 13 bankruptcy, depending on repayment plans.
A Chapter 11 bankruptcy — which is what SVB Financial is doing — enables businesses to restructure their debts.
A Chapter 13 installment plan for an individual is similar to a Chapter 11 plan for a business, Fuhe explained. New cases fell again in 2021 and 2022. Last year, there were approximately 380,000 newly filed cases involving crypto exchange FTX.
Last year saw a jump in the number of people seeking bankruptcy protection through Chapter 13 repayment plans. over 30 year over year, according to the American Bankruptcy Institute.
,According to the American Bankruptcy Institute, the number of people seeking bankruptcy protection through Chapter 13 repayment plans increased by more than 30% last year. ,
Togt and Fuhe both say more bankruptcies matter When no more If,
As inflation wreaks havoc on consumers, Fuhe said that for now the labor market can only help the most financially strapped households last for so long. He said that people can only put so much on the credit card.
“A strong job market is helpful to people. What's more helpful is a job market that pays people salaries that can keep up with inflation as well as rising debt costs,” he said.
Shares were under pressure on Friday afternoon.
Dow Jones Industrial Average DJIA,
On Friday, it closed at 31,861, down 384 points or 1.2%. S&P 500 SPX,
ended down 43 points, or 1.1%, at 3,916. Nasdaq Composite Comp,
lost 86 points or 0.7% and closed at 11,630.
“The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic options for its prized businesses and assets, particularly SVB Capital and SVB Securities,” said William Kosturos, SVB Financial Group's chief restructuring officer. , said in a statement.
SVB Financial Group is no longer affiliated with Silicon Valley Bank. After California regulators closed Silicon Valley Bank and the Federal Deposit Insurance Corporation took it into receivership, the successor bank, Silicon Valley Bridge Bank, remains under FDIC jurisdiction.
New York regulators also closed Signature Bank on Sunday and the FDIC took it into receivership.