The Top 5 Most Shocking Bankruptcy Stories of 2013
As another year gutters out and the month of December winds ever closer to another New Year’s Eve, another ball drop, and another explosion of confetti, that time is approaching again. You know the time: it comes like clockwork every year. It’s the time to turn around, step back, and gaze out over the vast stretch of 2013, in remembrance of all that’s passed across yet another 365 days of human life on planet Earth.
2013 gave up more than its fair share of newsworthy events. Violence and political unrest escalated in Syria. Edward Snowden’s spy scandal erupted across every news outlet known to man for months on end. Massive floods wreaked havoc in India, killing thousands and displacing thousands more. The U.S. government itself even stepped off stage for a few tumultuous weeks. But apart from the array of freak storms, information leaks, bloody wars, celebrity deaths, scientific breakthroughs, pop star scandals, and all the other stories that dominated the news, 2013 was a big year for bankruptcy, too. Now, with only weeks left in 2013, it’s time to bid adieu to the fading year-that-was with a recap of the most shocking bankruptcy stories of 2013.
5. Jefferson County Bounces Back From the Brink
Debt: $4.2 billion
Birmingham, Alabama. Once a relatively unknown outcropping of the rural south, Birmingham was planted squarely and indelibly on the map of the collective American consciousness in 1963, when Martin Luther King Jr. penned his famous “Letter from Birmingham Jail” to the hearts and minds of a country in the throes of the Civil Rights Movement. As the decades passed, Birmingham continued on existing in comparative quiet, known for little more than its long-standing association with the fallen spiritual leader.
In 2011, nearly half a century after King Jr.’s untimely passing, Birmingham made national headlines again: this time as the heart of a county over four billion dollars in debt. Jefferson County, with Birmingham as its seat, filed for Chapter 9 bankruptcy in November of 2011. At the time, prospects for the stricken county seemed bleak. Unemployment was high; job opportunities were few and far between.
But 2013 has proven a comeback year for Jefferson County. Unemployment rates have dropped by nearly 2%, and the planned introduction of deep new manufacturing pools into the area, like Honda and Mercedes-Benz, is highly likely to bring that number even lower. 2014 is looking bright for Jefferson County.
4. Bankrupt American Airlines Merges Into Super-Airline
Debt: $4.9 billion
When it comes to bankruptcy, airlines have a notoriously… er, turbulent environment to contend with. Between the massive costs of high-tech operation and maintenance, the massive workforces airlines need to function, and the six-figure expenses of perpetual research and development, airlines seem inclined to nosedive out of blue sky and into red ink. A disproportionately high amount of aviation heavyweights have filed for bankruptcy over the years, including household names like Northwest, United, Delta, and Pan Am. Occasionally they bounce back; oftentimes, they don’t.
In November of 2011 — at the very same time Jefferson County was filing for bankruptcy some 700 miles to the east — it was American Airlines’ turn. With $24.7 billion in assets, but $29.6 billion in debt, American was forced to file for Chapter 11 bankruptcy under parent company AMR Corp. But paralleling the story of Jefferson County once more, American rose like a phoenix (or like an airplane) just in time for the new year. The company has been officially approved for a merger with US Airways, and the new hybrid, American Airlines Group, Inc., is poised to become the biggest airline in the world, boasting a combined army of over 100,000 employees.
3. Cengage Learning Learns a Hard Lesson
Debt: $5.8 billion
Cengage Learning, Inc., is probably not as familiar as the other contenders on our year-end list. At least, not anymore — the company was arguably better known by its former name, Thomson Learning. But while the name Cengage may not be as ubiquitous as others on our list, the Connecticut-based company has nonetheless probably entered your life at one point or another.
That’s because Cengage Learning publishes textbooks — a lot of them. Not only does Cengage publish academic textbooks, it also cranks out training programs, educational software, and even digital materials. (Cengage also happens to own sizable chunks of several companies you may have heard of; just little businesses like Houghton Mifflin Harcourt, and National Geographic.)
Jefferson County and American Airlines put in several years of hard work to make it back to a state of solvency, and both have relatively cheerful comeback tales to tell for their efforts. Cengage, which only filed for Chapter 11 bankruptcy in the summer of 2013, has more financial work to do to make it to the same level. But, like its cohabitants on our list, the new year is looking promising for the mammoth publisher, if perhaps a little challenging. Most recently, the company has entered into a restructuring plan which aims to eliminate approximately four billion from the red — not a bad start to 2014.
2. Kodak Makes a Comeback From Their 2012 Bankruptcy
Debt: $6.75 billion
When massive companies go bankrupt, the public reaction is usually unsympathetic. That is to say, the trials and tribulations of entities who deal in terms of billions don’t typically elicit moans of compassionate dismay from the average working-class American.
The 2012 bankruptcy of Kodak, however, was met with neither indifference nor snarky laughter, but with genuine sadness. Famously immortalized in Paul Simon’s hit song “Kodachrome,” Kodak let Americans capture picnics, parties, graduations, and holidays for over a century, starting in 1892. In January of 2012, a full 120 years after its inception, Kodak broke hearts across the country by announcing that it was filing for Chapter 11.
But while 2012 was a rough year for Kodak, 2013 showed signs of gradual improvement — signs which company management and photography enthusiasts alike hope will continue into 2014. Just months ago, in November of 2013, Kodak made a dramatic return to the New York Stock Exchange. At the time of this writing, Kodak’s website — which is not simply Kodak.com, but KodakTransforms.com — greets visitors with a hopeful banner: “What’s next starts now,” it reads. 2014 is now, and Kodak seems ready for the challenge.
1. Detroit: The Largest Municipal Bankruptcy in U.S. History
Debt: $18.5 billion
For an article about overwhelming financial disaster, the stories we’ve covered in this article thus far have all been… well, pretty upbeat. Jefferson County, American Airlines, and Kodak all managed to right themselves after about two years in each case; and while Cengage Learning is only six months out of their bankruptcy, they appear to be already beginning to take the right steps back toward solvency.
Our number one list-topper is admittedly a little darker.
Detroit has been struggling against financial decay for years. And years. And years. Thanks to an unappetizing cocktail of housing segregation, race riots, the decline of the American manufacturing sector, competition and saturation in the automobile industry, dips in the national economy, and a steadily thinning population, the Motor City has lost its engine. Maybe it’s more accurate to say it was lost a long time ago.
It wasn’t Detroit’s financial troubles themselves that came as a shock in 2013, so much as the controversial one-two bankruptcy punch that those troubles finally culminated in this summer. The first punch was Detroit’s decision to file for bankruptcy in July of 2013 — utterly unprecedented for such a large city. The second punch was U.S. Bankruptcy Judge Steven Rhodes’ decision to grant that bankruptcy.
On one hand, many people — certainly Rhodes — are saying that the need to grant Detroit a Chapter 9 bankruptcy is obvious. While other American cities grow upward and outward in an explosion of commerce, art, and steel, Detroit can barely manage to illuminate its abandoned, burnt-out streets after the sun goes down. The Detroit Free Press reports that the city’s unemployment rate is a staggering 16.3%, more than twice that of the national average, which hovers around 7%. The city is particularly vulnerable to arson, with over 75,000 abandoned homes standing as a bleak invitation to fire. Police response times are stretched past the brink of real usefulness, and the city’s fire department struggles to squeeze results out of faulty equipment. With over 18 billion dollars in debt to thousands upon thousands of creditors, the city hardly has a dime to spare toward improving failing infrastructure and public services.
However, while it’s easy to see that Detroit is undeniably a city with profound financial problems, the apparent solution of bankruptcy has triggered a new problem even as it seeks to repair the old damage. As a part of the bankruptcy plan proposed (and still being refined) by city Emergency Manager Kevyn Orr, thousands of Detroiters will see dramatic cuts to their pension plans — pension plans which were modest to begin with, averaging around $20,000 per year. Pensioners and their attorneys, notably those affiliated with AFSCME (the American Federation of State, County, and Municipal Employees), are planning to appeal Rhodes’ controversial ruling, citing a violation of the Michigan Constitution, under which funds allocated to pension plans and retirement benefits are supposed to be untouchable.
Detroit may have been granted its bankruptcy, but the battle for the economic fate of the Motor City — and the fate of the people who live there — is just getting underway.
While Detroit may be facing a long uphill battle, many of the entities on our list transformed fiscal tragedy into financial triumph in 2013 through the power of bankruptcy. The stories of Jefferson County, American Airlines, Cengage Learning, and Kodak all go to show that bankruptcy is not the end of financial health as many people fear, but in fact, just the beginning. If you or a loved one is considering filing for bankruptcy, contact the law offices of Maselli Warren online, or call us today at (800) 891-2657 for a confidential consultation. Make 2014 the year you get back on your feet.