Experts: Gulf oil spill could lead to slew of bankruptcies


Experts say a slew of small- and mid-sized businesses along the Gulf Coast could seek shelter in bankruptcy court or shut their doors without enough cash or customers to make reorganization a reality.

"The effect of the oil spill will be to destroy a lot of businesses and that destruction will be contagious," Lynn LoPucki, a law professor at UCLA, told The Wall Street Journal.

In the wake of disasters, all kinds of businesses often get dragged down. As soon as one directly affected company can't pay its suppliers or its workers, a whole constellation of interconnected players in the local economy could run into trouble.

But the bankruptcy filings might not immediately follow the devastation. Experts say it usually takes anywhere from six months to a year before filing statistics begin to register the jolt to the economy.

Samuel Gerdano, the executive director of the American Bankruptcy Institute, cited a study on post-hurricane bankruptcy filings that revealed a 30 percent bump in filings two years after the storm and a 45 percent rise three years later, the Journal reported.

Attorney B. Andrew Monaghan said he's been approached by local small businesses that have seen demand for their services drop off or totally evaporate, but no one is quite ready to file a bankruptcy petition. Even players in the real-estate industry, who had already been suffering in the depressed economy, are still in a bit of denial, according to Monaghan.

"Everyone's trying to wait and see," he said. "At the moment, I think that people are probably trying to make claims with BP and hold on."

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