Courtney Rubin

Study: Small Business Bankruptcy Numbers Down

The number of small businesses filing for protection has dropped from last year, though it's still higher than pre-recession.

 

The number of small businesses that filed for protection under bankruptcy law fell 15 percent in the first quarter of 2011 from a year earlier, accoding to data released by Equifax.

The Atlanta-based credit ranking agency analyzed bankruptcy filings by metro area. The drop in filings sounds promising, though the study also found that the total number of bankruptcies in the first quarter of 2011 is still 30 percent higher than in the pre-recession first quarter of 2008.

Equifax defines "small business" as companies with fewer than 100 employees.

"In light of today's shifting economic conditions, bankruptcy trends serve as a valuable prism through which to evaluate the credit health of today's small business market," said Reza Barazesh, senior vice president of Equifax Commercial Information Solutions. "Our latest analysis shows that while business failures may be on the decline, conflicting trends are still making us question if the worst is behind us."

California topped the nation in small business filings for reorganization or liquidation: The state's metro areas claimed four of the top five slots on the most-filings list.

The Los Angeles metro area ranked No. 1 on the list, with 1,048 small firms declaring Chapter 7 or Chapter 11 bankruptcy during the first three months of this year. It was followed by Riverside-San Bernardino-Ontario (629 bankruptcies), Sacramento (434), and San Diego (400). Houston rounded out the top five, with 363 firms declaring insolvency.

The nation's sharpest decline in business bankruptcy filings in the past year was Denver, where filing dipped 26 percent.

"Only time will tell if these patterns are just a market aberration resulting from current economic turbulence or a sign of change to come," Barazesh said.

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.