Bankruptcy Dominoes

29 Nov Bankruptcy Dominoes

Bankruptcy filings–especially big ones–are often like dominoes. Let’s say a large commercial project, like a shopping center, falls on hard times, and the developer files for bankruptcy. Even if the bankruptcy is a Chapter 11 reorganization, which means that the company may continue to operate, and even continue to develop the shopping center, the contractors who have done the construction, the suppliers, and even the architects and engineers, may not get paid for a while, or may not get paid all they are owed. So the general contractor also files bankruptcy. Now the subcontractors don’t get paid, and the workers are laid off, and so on, and so on. Even a small or medium-sized business bankruptcy can have a ripple effect.

The same effect can be seen from the largest Chapter 11s, like General Motors, down to a Mom and Pop business. And in the present climate, it may take only the slightest pressure to start those dominoes falling. Just as a consumer might have been better able to withstand the effect of a pay cut two years ago, before credit card interest went up along with the cost of medical insurance, businesses of all sizes may be more vulnerable now, when credit is tight and growth is slow (or nonexistent).And recovery will require the same ripple effect through the economy.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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