The 2016 Preliminary Report of the ABI Task Force on Individual Chapter 11 (senior counsel to the firm Michael J. Guyerson was a Task Force Member) provides some interesting insights into the individual chapter 11 process,who is filing them and why they are being filed. Funding for the Study was provided by a grant from the ABI Anthony H.N. Schnelling Endowment Fund. The Final Report has yet to be published. The draft report is available on abi.org.
The study looked at chapter 11 cases filed in 2010 and 2013, over 6,666 individual cases filed in 78 judicial districts were examined and covered by the study. The Task Force choose to look at cases filed in 2010 because those cases were likely to have some quantifiable results; 2013 was selected because of the impact of the financial collapse of 2010 and the feeling that by 2013 that impact would be meaningful measured as well.
Some of the more interesting data of the study shows that 78 of 94 judicial districts accounted for more than 90% of all individual Chapter 11 filings with the number of individual chapter 11 filings varying greatly by district from a low of 1 case each in 2010 and 2013, respectively, for the Middle District of Louisiana to a high of 581 and 349 for 2010 and 2013, respectively, for the Central District of California. There were also significant numbers of individual Chapter 11 filings in other areas of the country, for example the Middle District of Florida and Nevada.
The study found that in 2013, a full 65.4% of all new chapter 11 filings were corporate filings, 31.25% fell into the individual chapter 11 category, 2.13% were partnerships and 1.25% were marked as other.
It is also interesting to note that, as the study found, the types of individuals filing for chapter 11 changed slightly from 2010 to 2013 with Real Estate related employment individuals begin at 8% in 2010 and rising to 10% in 2013. Professionals such as doctors, lawyers, and CPAs rose from 9% in 2010 to 13% in 2013. Owners, Manager, Executives remained the same for both periods at 24%, and the Self-Employed fell from 17% in 2010 to 13% in 2013.
The study also showed that while priority debt in general appeared to be relatively small and played a little role in the individual Chapter 11s examined, unpaid tax obligations were a common debt in many of the cases. Over half of the debtors listed tax obligations and approximately 28% of the debtors in each year disclosed total priority tax debts of more than $25,000, and in 2013 more than 20% disclosed tax debts more than $50,000.
Counsel might also note that few attorneys appear to specialize in individual Chapter 11s. The study revealed that 62 attorneys handled eleven or more individual Chapter 11 cases over the two years covered by the data (2010 and 2013). As the study found, a substantial majority of individual chapter 11 cases and filed by attorneys who had filed five or fewer petitions in 2010 and 2013 combined. By contrast, only around 21% of the cases were handled by attorneys who worked on eleven or more cases in 2010 and 2013 combined.
As for success or failure of filed individual chapter 11 cases, the study showed that the median time to conversion or dismissal for individual Chapter 11 cases was 293 days, about nine to ten months old on average. At about sixteen months, 75% of the individual Chapter 11 failures had failed and dismissed or converted. This compares to about 140 days for business related cases 11 cases to face dismissal or conversion.
The full study makes many more observations and conclusion that can be discussed in
this blog so please consult the full version of the report.