Business Bankruptcies Are On The Rise.

Originally Posted in Cooley Godward Kronish LLP's In The (Red) Business Bankruptcy Blog, August 21, 2007

As reported in this post from June 2007, trade credit insurer Euler Hermes ACI previously predicted that business bankruptcies in the United States would rise by more than 50% in 2007. In a press release issued on August 21, 2007, Euler Hermes noted that recent information and statistics released by the U.S. bankruptcy courts has confirmed this earlier prediction.

The trade credit insurer said that the new statistics reveal that "6,705 businesses declared bankruptcy in the second quarter of 2007," showing a "series of upward trends," including:

A 7% increase over the first quarter of 2007;

A 38% year-over-year increase from the second quarter of 2006; and

A 45% increase for the first half of 2007 in comparison to the first half of 2006.

What's driving the increase? According to Daniel C. North, Chief Economist at Euler Hermes ACI, "businesses today are facing serious headwinds, including a slowing economy and an increase in the cost of doing business." He has also commented that the three most serious economic issues remain "the effects of increased energy, raw material, and labor costs; the effects of monetary policy tightening by the Federal Reserve in 2004-2006; and the 'decimated' housing market and its effects on consumers and businesses."

As these factors play out over the coming months, the pace of business bankruptcy filings will likely continue to increase -- even in the absence of a broader economic downturn.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Bob Eisenbach

Cooley Godward Kronish LLP

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