Biz Failures Jump Amid Rate Hikes

But personal filing extend 13-month decline

Long Island Business News
By: Rose-Robin Lamb
7/07/00

Long Island - Area business failures rose by a third in May as interest rate hikes by the Federal Reserve began to take their toll on the local economy.

Although overall filings dipped, business bankruptcies in Nassau and Suffolk climbed to 16, up from 12 last May, for an increase of 33.3 percent. Filings increased to eight in Nassau County, up form six last year. Suffolk's eight filings were up form six a year ago.

"It may reflect the increasing rate," said Howard Kleinberg, a partner in the Uniondale law firm of Rifkin, Radler & Kremer.

Since last June, Federal Reserve Chairman Alan Greenspan has raised interest rates six times, from 4.75 percent to the current 6.5 percent. Though Greenspan abstained from increasing rates last month, some economists say another increase could occur in August.

"There are some numbers that have come out to indicate that the economy is showing future growth, which would lead to a possible rate increase in the future," said Kleinberg

Bankruptcy filings on Long Island totaled 764 in May, compared to 862 filings in the same period last year, continuing a downward trend for the 13th straight month. The month-over-month comparison showed 4.7 percent increase compared to 730 filings in April.

"When changes in the economy occur, changes in bankruptcy filings don't follow the next day," said Michael Brofman of the East Meadow law firm Certilman Balin Adler & Hyman. He cited the financial downturn in 1987 and early 1988, which did not lead to an increase in bankruptcy filings until the early 1990s.

Bruce Zabaruaskas of Meltzer, Lippe, Goldstein & Schlissel predicts that unlike the real estate industry's downfall in the early '90s, the next round of filings might come from the retail technology sector.

"I think the next set of bankruptcies is coming from the computer industry and the dot-com companies," he said. "Dot coms do not have many assets, and with computer prices going down, margins are being cut very thin (for retailers)."

Personal filings decreases 12 percent to 748 form 850 in May 1999. Filings decreased by 11.2 percent in Nassau to 278 and 12.5 in Suffolk to 470 for April. In the month-over-month comparison, personal filings increased 3.6 percent from 722 in April.

According to the ABI Journal, published by the American Bankruptcy Institute, about 40 percent of all bankruptcies are the result of financial reversal, many of which are caused by medical bills, loss of income due to the death of a spouse or the loss of a job.

"Right now, there is no shortage of jobs," Brofman said. "You are seeing a very full job market. A lot of people are employed, especially on Long Island. It is impossible to find people. As a result, we raise wages. We raise benefits. Since most bankruptcies are caused by medical bills and a lack of employment, you're not seeing much of an increase."

Although there is no apparent trend to the personal filings, Kleinberg thinks the higher number of filings in Suffolk may be attributed to "the greater concentration of working and middle class families in Suffolk."

National outlook

Bankruptcies filed across the country during the 12-month period ending March 31 totaled 1,419,199 according to the Administrative Office of the U.S. Courts.

Of the total number of bankruptcy filings for the 12-month period ending March 31, 2000, there were 908,802 Chapter 7 filings, a 10.6 percent decrease from the 1,017,049 Chapter 7 bankruptcies filed in the same period in 1999. The next largest group of filings is Chapter 13. These decreased by 3 percent from 393,245 in the same 12-month period of 1999 to 381,568. Chapter 12 filings fell 14 percent to 739 in the first quarter of 1999. For the first time in seven years, Chapter 11 filings increased 25.7 percent form 8,010 in 1999 to 10,071.

Personal bankruptcies accounted for 97 percent of the total new cases filed from April 1, 1999 to March 31, 2000. These cases decreased from 1,377,591 to 1,263,096 during this period. Business bankruptcies increased to 38,109 form 40,966. Business filings increased by 3 percent from 9,180 to 9,456.

Over the past 12 months, total filings have increased in six districts and decreased in 88 districts. The Eastern District of New York, which includes Nassau and Suffolk Counties, posted an overall decrease of 18.4 percent, bested only by the Northern District of California (a decline of 24.8 percent) and the Southern District of California, which saw a decline of 19.5 percent.