Bankruptcies Plague American Oil Patch

What is the reason for spike in bankruptcies in the oil sector?

Drivers in Wisconsin have been noticing it’s getting cheaper to fill up their tanks lately as gas prices are at the lowest level in more than a dozen years. In fact, the price of gasoline has been averaging $1.59 per gallon according to petro-analysts. This is due to two factors: the cost of a barrel of crude oil has been hovering at $30, and there is a glut of winter-blend fuels in the market. While the price of gasoline may start to rise as the warmer months require higher ethanol blends of fuels, consumers have been seeing more money in the pockets because of the low gas prices. That’s the good news. The bad news is that the oil industry has been forced to scale back and is seeing a wave of bankruptcies.

Bankruptcy Filings in the American Oil Patch

In 2015, about 67 U.S. oil and natural gas companies filed for bankruptcy protection — a spike of 379 percent from the prior year when oil prices were substantially higher. The boom in U.S. oil production over the last several years was triggered by the advances in “fracking,” but the abundant supply of oil has come back to haunt the oil patch.

Oil prices have continued to tumble this year, leading to another five energy gas producers filing for bankruptcy, and many observers believe more are on the horizon. While cheap gas is a boon for drivers, the flip side to cheap energy prices is the failure of dozens of drilling and servicing companies. This demise is also costing thousands of jobs — and unemployment is a key reason for personal bankruptcy filings. As was recently reported, bankruptcy filings in Wisconsin and across the nation fell in 2015. Nonetheless, the problems plaguing the oil industry may bring about an uptick.

Reasons for Oil Industry Bankruptcies

The shale boom along with high production levels form the OPEC cartel caused a glut of crude oil on the international markets. The price of a barrel of oil in mid-2014 was over $100; now the price is falling below the $30 floor. There has also been a steep drop in natural gas prices. With the shale boom and promises of high profits, many producers acquired massive debt in order to fund expensive drilling. Now that oil prices have tanked, revenues for these companies have fallen, cash flows have withered, and the oil producers have not been able to pay their debts. While some companies have been able to ride out the storm by cutting spending and slashing jobs, higher leveraged entities have been forced into bankruptcy.

Why this matters

The capital structures of oil producers are complex, and disposing of assets can be a slow process. Many analysts believe the first wave of bankruptcies is only a precursor as more companies will be unable to pay their debts, some of which are publicly traded oil and natural gas producers. The question remains as to whether there will be a ripple of bankruptcies for other businesses and individuals who depend on the energy sector. In the meantime if you have questions about bankruptcy or other debt-related issues, you should consult with an attorney who has expertise in bankruptcy law.

Bankruptcy Numbers Down In Wisconsin

Why has there been a decrease in bankruptcy filings in the state?

Bankruptcy filings peaked both nationally and in the State of Wisconsin during and after the recent recession. Now, bankruptcy numbers are coming down and returning to a normal level.  But, why are the numbers coming down? Apparently, many of the factors that drove them up are no longer present.

During and after the recession, most bankruptcy filings were for Chapter 7, which allows the debtor, in most situations, to take advantage of a fresh start. The major causes of bankruptcy were, and still are, job loss, divorce and medical costs. During the recession, an exponentially increasing number of job losses drove the number of bankruptcies through the roof. Now that many people are working again, the number of bankruptcies filed because of unemployment is coming down. Although many people are not making as much money as they used to, they are seemingly making enough to keep them afloat and up to date with their bills.

Rock bottom real estate values are also less of a problem these days. While the numbers are still not where they were, the market is slowly rebounding, allowing owners to see an increase in their assets. This increase in wealth is allowing more and more people to steer clear of bankruptcy.

Another major cause of the recession, easily accessible credit, is less of an issue at this time. Before the recession, too many unqualified individuals were able to obtain credit in various forms. Now, tougher restrictions have made it much more difficult than it once was to obtain credit cards and mortgages. This has made it harder for people to get into financial trouble.

While it seems that the recent recession taught the country a lesson in several areas, we shouldn’t get ahead of ourselves. There is still plenty of work to be done. Some experts believe that even though we are at a more normal level of bankruptcy filings, that the numbers should go even lower. Things could also go the other way. Experts are keeping their eye on the student loan crisis. Many individuals are unable to pay back their student loans and are turning to bankruptcy for relief. This might cause an uptick in the number of filings in the near future.

If you are considering bankruptcy, you should speak to a qualified Wisconsin bankruptcy attorney today.

Verso Bankruptcy May Hurt Wisconsin Paper Mills

What is the latest news about the Verso bankruptcy?

As has been reported, the demand for coated paper has been declining for years and this has had a staggering effect on paper mills in the state of Wisconsin. In fact, Verso Corp., the firm that owns paper mills in the state, recently filed for bankruptcy.

Verso is a Tennessee-based corporation and there is growing concern that the bankruptcy may ultimately lead to job cuts for the 1200 employees of the company, including those who work at the Wisconsin Rapids and Steven Point mills. While company officials have said that reductions in force are not part of the reorganization plan, the company has acquired billions in debt, and, according to industry observers, the future for the coated paper industry looks grim.

This will invariably force paper companies to cut costs and even unwind some of their operations. Some papers mills will cease operation entirely, and some believe the mills in Wisconsin are among those that may shut down. By pursuing a Chapter 11 Bankruptcy, Verso may be able to mitigate or wipe out about $2.4 billion in debt.

What is a Chapter 11 Bankruptcy?

A Chapter 11 bankruptcy is designed to enable a business that has heavy debt burdens to reorganize. In short, a Chapter 11 filing allows a debtor to come up with a post-bankruptcy plan for returning to profitability. Included in the plan are measures like cutting costs by workforce reductions, winding down certain operations, and seeking new sources of revenue or income. Meanwhile, creditors need to agree to a new payment plan for the debt, and may ultimately suffer losses.

What is causing the demand for coated paper to decline?

Deteriorating demand for coated paper is due in part to the fact that this product is used primarily by magazines and catalogs. In the digital media age, subscription for these items has fallen dramatically, and many magazines and catalogs are transitioning to electronic formats. Moreover, foreign competition has also had an impact on the domestic coated paper industry, since suppliers in Asia and Europe produce the paper more cheaply.

Meanwhile, Verso has previously reported a net loss of $111 million for the third quarter of 2015 and said that it was considering selling the Stevens Point Mill. While Chapter 11 is typically relied upon by large corporations, this relief is also available to small businesses. If you are a small business owner and have questions about bankruptcy, you should consult with a qualified  bankruptcy attorney.

Lottery Prize of Bankruptcy Debtor Being Auctioned Off

Can a lottery prize be considered non-exempt property and sold by a bankruptcy trustee?

In the current financial climate, many Americans are struggling to pay their bills.  These people might look to personal bankruptcy for relief from overwhelming debt.  In many situations, Chapter 7, or liquidation bankruptcy, might give them the best chance of getting back on their feet.

Chapter 7 bankruptcy is called liquidation bankruptcy because it requires that the debtor hand over non-exempt property to a bankruptcy trustee and the ownership of this property to be transferred to a bankruptcy estate.  At this point, the trustee sells or liquidates the property in order to pay back the debtor’s creditors.  The debtor can keep property that the trustee finds is not worth selling and is abandoned by the trustee. Almost any type of non-exempt property can be transferred into a bankruptcy estate, even lottery winnings, as is the case in a personal bankruptcy case coming out of the State of Michigan.

A 73-year-old Michigan man named Donald Magett has been collecting $1000 a month since winning on a Cash for Life game in 1984.  As you might suspect, Magett is entitled to receive $1000 a month for life.  At some point after his winning this prize he filed for personal bankruptcy.  The main asset of the bankruptcy estate is the lottery winnings, which are currently being used to pay creditors.  But, the trustee in this case has recently been granted the authority to auction off the lottery winnings.  The sale will take place online and the bidding will start at $30,000.  Therefore, if Magett lives approximately two and a half more years, the purchaser will have made money on the ticket (not considering taxes).

If you are considering filing for personal bankruptcy, and you have questions about exempt and non-exempt property, you should speak to an experienced attorney.