Small-business bankruptcies in decline, but Wayne sees uptick in activity

But an attorney says bankruptcy in the region won’t become a trend, especially since the process is so costly for business owners.

With the exception of the New York-White Plains-Wayne area, small-business bankruptcies shrank in every metropolitan district in the nation, including several frequent offenders in the California market, where activity fell more than 30 percent on average in the second quarter of 2012 compared to the same period last year.

The Wayne area saw a 12.3 percent increase in small-business bankruptcy petitions compared to the second quarter of 2011, boosting its ranking from 16th to ninth place in Equifax’s list of areas with the highest number of bankruptcies.

However, Andrew Sherman, co-chair of Newark-based Sills, Cummis & Gross P.C.‘s bankruptcy reorganization practice group, said he “hasn’t seen the same volume of cases that we saw pre-2007.”

“I think the report showed a short-term spike in bankruptcies that I don’t think will be a trend. Looking at the numbers, there were only an extra 25 cases, so we’re still dealing with a small number here,” Sherman said. “It could have been one business with 10 related cases, or one individual with multiple businesses, but even if it was 25 different cases over a three-month period, it’s not going to spread to the whole market.”

Sherman said if one industry in North Jersey was to blame for the boost in activity in the second quarter, it would be retail, where small businesses usually “file for bankruptcy after the end of the calendar year to use the Christmas season to liquidate their inventory as best they can.”

“Small businesses in retail have really been challenged, but I don’t see it having waves in manufacturing or other industries like I do in health care,” Sherman said, noting his firm recently worked on Christ Hospital’s bankruptcy case. “When you have a bankruptcy in that area, it definitely has a ripple effect in other businesses.”

On the national scale, Amy Crews Cutts, senior vice president and chief economist for Equifax, said the shrinking amount of small business bankruptcies as a whole isn’t surprising.

“Small-business owners are still steadfastly deleveraging — bringing their debts, assets and cash flows into better alignment,” Crews Cutts said in a statement. “Couple that with promising signals in small-business lending, and business owners are better positioned to stay afloat.”

But Sherman said the report doesn’t capture the real picture, since an emerging trend in the business involves small companies keeping their restructuring efforts out of court to avoid bankruptcy cases altogether.

“Bankruptcies have become very expensive, and going to court means a lot of money, time and risk for companies, especially small businesses,” Sherman said. “Come 2013, we’ll definitely see an increase in the restructuring market. Because of the volume of small businesses in New Jersey, I think this area is always going to be one of the higher markets — maybe not in bankruptcies, but in restructuring as a whole.”