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“Business Bankruptcies Rise More Than Individuals’”, I read in Businessweek the other day. 

As an Indiana lawyer for bankruptcy these many years, I offer bankruptcy services and bankruptcy information in Indiana only, so I was curious to verify if those 2009 statistics are consistent with what happened in our state.

Based on information supplied by Bloomberg News, here’s what I found out:

First, when it comes to personal bankruptcies filed per capita, our state ranked fifth of the fifty states last year. However, unlike the case nationally, the percentage increase of “commericial” versus “non-commercial” bankruptcies, in Indiana it was about the same (25% increase) percentage increase compared to 2008. Bloomberg counts a rise in individual bankruptcy in Indiana from 7,970 in 2008 to 9,283 last year, while “commercial” bankruptcies went from 566 in 2008 to 717 last year.

Talking about these numbers with the Columbus bankruptcy lawyers who work in the Mark Zuckerberg bankruptcy law office there, we agreed that problems in the auto manufacturing industry played a major role in Indiana’s troubles, both directly and indirectly.  My own experience in dealing with small business bankruptcy in Indiana has shown me several interesting and sad aspects of the situation here: 

Indiana is home to many, many small businesses.  Many of those are tied to the auto manufacturing industry or to other manufacturing, perhaps as suppliers of parts or services to multi-national corporations.  According to recent federal data, there are more than half a million small businesses in Indiana.

It’s very difficult to separate personal and business matters in small business bankruptcy in general, and I’ve found that to be definitely the case here in Indiana, with personal and business finances, more often than not, intertwined. Loans for the business were personally guaranteed, backed by owners’ assets. Personal money was put into the business, and money was withdrawn from the business for personal use.  One result I’ve seen is that, while legally a business can file bankruptcy in its own right, in the real world the client is often forced into personal bankruptcy in Indiana along with his/her business.

This intertwining of “commercial” and “non-commercial” bankruptcy simply isn’t stated or even directly reflected in any of the statistics I read.   Nevertheless, I believe the connection between personal finances of small business owners and the finances of the businesses they own is a key factor in explaining why the percentage increase in personal bankruptcy in Indiana and the increase in business bankruptcy in our state are just about neck-and-neck.

 

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