Bankruptcy— deja vu all over again?

Gavel to Gavel: Bankruptcy Deja Vu

By Charles Greenough

Whenever I meet someone recently and tell them that I’m a bankruptcy lawyer, they usually say something about how great business must be. Well, the bankruptcy business is better, but it’s not a replay of the 1980s.

First, Oklahoma bankruptcy filings have been on a long steady decline for years that continued through 2015. The total number of bankruptcies filed in Oklahoma is now less than half what it was in 2001. The first quarter of 2016 is up, but only by a handful. Second, almost all filings are consumer cases, not business. Not to be crass, but for bankruptcy lawyers business cases are where the money is.

Why? Boring technical reasons. The bankruptcy reform law Congress passed in 2005 has made it more expensive for consumers to file bankruptcy. Higher prices reduce demand, even for bankruptcy services. Go figure.

And most large business cases are not filed in Oklahoma anymore, even if they are what we would think of as Oklahoma companies. Bankruptcy law allows a large company to file pretty much wherever it wants. Those companies (and their lawyers and bankers) want to file in Delaware or New York.

So what will we see in Bankruptcy Court in Oklahoma? On the consumer front, if the rumors are true from lawyers about their intake meeting schedules and from the auto auction managers about the number of three-quarter-ton white pickups on the lot, filings will increase. But there’s no way the numbers will be like the 1980s. The drop has just been too dramatic over the last 15 years. Also, there’s a total absence of very high asset (and liability) individual cases so far.

On the business side, there have been and will be filings of energy exploration and production companies. To date those have been liquidations via bankruptcy auction because the value of the assets is so far under the amount of debt that there’s no chance of reorganization. Although the sample size is small, the auctions have been active – with multiple local bidders – and disciplined … meaning the bidders stop when they hit their number.

But what we’re likely to see is nothing like the Penn Square Bank days. For now, the old war stories will just have to get a little older.

This article appeared in the April 7, 2016, issue of The Journal Record. It is reproduced with permission from the publisher. © The Journal Record Publishing Co.