Eperts say to seek out advice early

BANKRUPTCY A RISK FOR SMALL BUSINESSES

January 21, 1991|By Graeme Browning

Every cloud has a silver lining, they say. For bankruptcy lawyers, the lining on the cloud of economic recession fairly glimmers these days.

Last year Alexander Gordon IV, a lawyer and bankruptcy trustee in Easton, handled double the number of business and personal bankruptcy cases he had in 1989.

This year, "I had three new bankruptcy cases on Jan. 1 alone. It looks like 1991 is going to be a real banner year for bankruptcies," Mr. Gordon said recently.

For a long time last year, economists and government prognosticators refused to use the dreaded "R" word -- "recession" -- when talking about the state of the economy. The nation faced a mere "slowdown." The "sluggish" pace would pick up soon, they said.

But in late December, the U.S. Commerce Department said the Index of Leading Economic Indicators, the government's main gauge for predicting the economy's course, tumbled 1.2 percent in November, the fifth straight month in

which it had done so.

On Jan. 2, Michael J. Boskin, President Bush's chief economic adviser, said in a television interview that the United States had "probably" entered a recession but that it would be relatively short.

Lawyers who monitor the health of the local economy are not so optimistic. Since the beginning of the month the U.S. bankruptcy court here has received 255 bankruptcy petitions, according to court records.

Most of the petitions are personal bankruptcies under Chapter 7 nTC of the federal bankruptcy laws, but the number of businesses seeking the protection of the court and reorganization under Chapter 11 of the federal laws is growing at an alarming rate, lawyers say.

"There's an extraordinary number of bankruptcy filings these days. No one knows how long it's going to last," said Lawrence D. Coppel, head of the bankruptcy and creditors' rights practice at Gordon, Feinblatt, Rothman, Hoffberger & Hollander.

The economic realities of a sagging market are driving the rise in bankruptcies, but psychology is also playing a part, Mr. Coppel said.

When experts acknowledge that the recession is here, "it affects companies' ability to turn things around. If they can't foresee business picking up over a relatively short period of time, they start seriously considering other alternatives," he said.

Small businesses in particular tend to wait until it's too late before they seek out financing alternatives that will keep them afloat, said Timothy F. Umbreit, whose two-person firm, Umbreit & Matlock, specializes in counseling small businesses.

Bankruptcy advice "should be sought the day you go into business," Mr. Umbreit said.

The "fixed and immutable principles of self-destruction" for smalbusinesses are undercapitalization, overextension of credit and paying too much rent, he added.

Small businesses "have to be very realistic in this economy. If they want to keep themselves afloat, they can't have a pipe dream," Mr. Umbreit said.

A worsening economy seems to have affected larger businesses in recent months. Rockville-based W. Bell & Co., for example, filed on Dec. 29 for reorganization under Chapter 11.

These may prove, however, to be simply events driven by unforeseen changes in consumer demand or the availability of financing, said Nathan B. Feinstein, a partner in Piper & Marbury's Washington office.

"It has not always been true that business bankruptcy filings increase dramatically just because there's bad times," Mr. Feinstein said.

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