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Texas becoming a hotbed for Chapter 11 bankruptcy

The need to file for a business bankruptcy is frequently contingent on market factors. It is with this in mind that a large number of businesses have needed to move forward with a Chapter 11 bankruptcy in Texas because of a glut in the oil market. According to research, the number of cases that were filed over a seven-week period in Texas was one fewer than the total number in the East Coast courts of Delaware and the Southern District of New York.

The vast majority of the cases of Chapter 11 in Texas were linked to companies in the oil and gas industry. Two in particular had more than $1 billion in liabilities. Another that recently filed had more than $500 million in liabilities, blaming the depressed prices in the energy markets. Other companies and service providers who have faced financial issues resulting in filing for Chapter 11 were ancillary businesses for the energy companies. These businesses were involved in oilfield services and equipment. During the period in question, 67 percent of energy or energy-linked companies that filed for Chapter 11 were in Texas.

Overall in 2016, more than 25 percent of all companies focused on in this study were in Texas. In the previous period that spanned slightly less than four months, the districts in Texas accounted for 14 percent. Other energy companies that focus on oil and gas are also expected to move forward with a Chapter 11 in the near future. The main reason proffered for this is the reduction in commodity prices. Since oil and gas is so prominent in Texas, it is no surprise that the current state of the economy is hitting it hard and making Chapter 11 bankruptcy such a common step for these businesses to take.

While this situation is centered in the oil and gas industry, it has already spread to other providers that take part in that business. It is not a great leap to believe that this issue could also affect other businesses that are either involved in energy in a limited way or benefited from companies' solvency and ability to spend. Business whose leaders are considering filing for Chapter 11 need to make certain that it is the right option for them. Speaking to a legal professional who is experienced in helping clients with reorganization under Chapter 11 can provide guidance in moving forward with filing.

Source: Forbes, "Is the Southern District of Texas Bankruptcy Court the New SDNY?" Jessica Steinhagen and Ian Howland, April 22, 2016

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