The economic situation in the country during the past three years means that many companies, and many consumers, have struggled financially. And when these businesses and individuals can no longer pay their bills, they head to the closest location of the U.S. Bankruptcy Court.
In 2010, there were more than 1.5 million bankruptcy court filings, a 27% increase from 2009, and each one of them is a potential story. Yet navigating the maze of the bankruptcy court system is a skill that few business journalists have.
Here’s what you need to know to find the news stories at bankruptcy court:
What’s the type of filing?
There are three basic filings in U.S. Bankruptcy Court. A Chapter 7 filing is the most drastic, and it means that the business is going to close its doors and sell all of its assets, down to the shelves in its stores. A Chapter 11 filing means that the company wants to reorganize its debt and leave bankruptcy court as a leaner, more efficient company. And a Chapter 13 means that the company plans to repay all of its debt during a three- to five-year time period.
The Chapter 11 is the most common business filing. When a company files for Chapter 11, it is asking the court to eliminate some of the debt that it owes. The company will negotiate with its debtors as to how much gets repaid.
What are the documents to look for?
When a company or a person files for bankruptcy court protection, it will file an initial document that lists the amount of its debts and the amount of its assets. A few weeks later, the company or individual will file a list of all of the businesses and people it owes money. A business reporter should consider this list a free source list.
Then there’s a reorganization plan, which is filed after the company reaches an agreement with its debtors. This plan will disclose key strategic decisions, such as whether the company plans to close locations and cut employees. It will also say how much the creditors will be repaid. It will be described as something like 70 cents on the dollar, or 60 cents on the dollar.
Then there’s the final judge’s ruling, which allows the company to exit bankruptcy court.
Who are the best sources?
The clerk at your local bankruptcy court is a vital source. He or she will know if a company has filed for bankruptcy court protection, or if it has filed a specific document. Always check with this person when you visit bankruptcy court.
There’s a bevy of attorneys involved in any bankruptcy case. The most important ones are the attorney representing the company and the attorney representing the creditor’s committee. They can provide some perspective as to whether the case is proceeding, and how the negotiations are going between the business and its creditors.
The judge’s executive assistant or clerk can be good sources as well. They can tell you what cases a judge is expected to hear during the day or week, and whether attorneys involved in a case have been meeting with the judge. They can also tell you if the judge is about to issue a ruling in a case that you’re covering.
Don’t forget about the creditors. They’re owed money, and they’re likely to be talkative because they want to get their money back.
Who else is involved?
Lawyers, accountants, consultants, turnaround experts and the company executives whose strategy may have forced the business into bankruptcy court protection all feed from the bankruptcy court trough. Look to see how much they’re getting paid during the process. Every dollar they get means that the creditors get less.
Don’t forget about personal bankruptcies
Look for trends in personal bankruptcy cases. Are there a lot of people filing in your community because they overextended themselves by purchasing a home with a mortgage that they can’t afford? Have layoffs at a local company forced many of its former employees into bankruptcy court? Another interesting personal bankruptcy story is whether executives of local companies have personal filings. If they can’t manage their personal finances, how can they successfully operate a business?
Most states have multiple bankruptcy court locations, based on geography. Even if your closest bankruptcy court is out of town, it pays to check filings on a regular basis. (Few bankruptcy courts have websites with filings, but the PACER system does provide access to filings.)
Also ask the clerk regularly for statistics on the number of local filings. This can be a story that can tell readers what’s going on in the local economy. A decline in filings could mean that the local economy has turned the corner, while a continued rise in filings could mean that the economy has yet to recover.
Chris Roush is the Walter E. Hussman Sr. Distinguished Scholar in business journalism at UNC-Chapel Hill. He can be reached at croush@email.unc.edu. Tags: financial crisis, training.