Bankruptcy Indiana

Perhaps the initials of the country's largest lender to small business, CIT (Commercial Investment Trust), really stand for Creditor in Trouble.  CIT Group, Inc., a finance company founded in 1908, has more than a million clients to whom it provides financing, including Dunkin' Donuts and Dillard's.  Now, however, CIT is itself desperately in need of financing, hovering on the brink of bankruptcy.  A CIT failure could deal a devastating blow to the economy, according to some analysts.

Meanwhile, CIT was in talks with the Federal Deposit Insurance Corporation, the Federal Reserve, and the Treasury to find measures to stay afloat, including getting permission to issue government-backed bonds.  Hopes of such a government bailout, which sent CIT shares soaring 19% last week, were dashed, but several large banks are set to engineer financing to keep the company afloat.

As a bankruptcy attorney, I've helped thousands of small business owners either avert bankruptcy or navigate the Indiana bankruptcy court system.   A failure of a company like CIT that is a major lender to small business would hit retailers particularly hard going into the back-to-school season, when businesses need to stock up on inventory.

Earlier this month, I blogged about lenders looking for ways to assess the risk that a business might fail, bringing out the point that the reciprocal effects of business bankruptcy and personal bankruptcy help make economic downturns worse.  I cited a study done at Northeastern University showing that a 10% increase in business bankruptcies tends to result in a 3.43% rise in personal bankruptcies.  That's because of people losing their jobs and the income they had been earning from these businesses.

Going back to the CIT situation, the concern is that if this lender is allowed to go under, it will cause a wave of small business bankruptcies, which in turn could cause more personal bankruptcies, just as the country is trying to climb out of the recession.  According to Financial Times, CIT has lent more than sixty billion dollars to 760 manufacturing companies and 300,000 retailers. 

These small and mid-sized companies depend on being able to borrow capital in order to keep doing business.  According to the Small Business Administration, small businesses accounted for 60-80% of all job creation in the U.S. during the past ten years. As I often repeat in my Indiana bankruptcy blog posts, successful emergence from bankruptcy depends on income from jobs.