Bankruptcy Cases Skyrocket as the Economy Plummets

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LAW: Debtors Seeking Protection Besiege Attorneys
By MIKE ALLEN
San Diego Business Journal Staff

Bill Kousens recalls when Aerowind Corp., an El Cajon manufacturer that supplied the payload sections of Tomahawk missiles, operated round-the-clock. “For much of the decade from 1982 to 1992, we were running 24 hours a day, seven days a week,” says Kousens.

The firm once employed as many as 125 workers, he says.

But those days are long gone. In the past 18 months, Kousens has laid off 20 workers, shrinking his staff to 12 as sales dwindle to less than half of the $2.5 million achieved in 2008.

In addition to dwindling defense work, a key customer filed for bankruptcy, putting even more pressure on his business.

“We sold off a lot of our equipment to reduce our debt payments from $50,000 a month to $10,000 a month,” said Kousens.

Though the downturn started more than three years ago, Kousens said he’s been dealing with a federal tax bill dating back to 2005.

Kousens’ business had cash flow problems and he got behind on payroll taxes. After making arrangements with the IRS, Aerowind again fell behind.

The IRS threatened to seize the company’s equipment to satisfy the debt, Kousens’ attorney advised him to file for Chapter 11 bankruptcy protection. The filing permits him to repay creditors a percentage of the debt owed while keeping his doors open.

“The gist of it is that we talked to our creditors before we went and filed,” he said of the filing Aug. 28 in U.S. Bankruptcy Court in San Diego. “It looks like reorganization is going to work.”

Aerowind has plenty of company at the federal building. According to data provided by California’s Southern District Bankruptcy Court, which covers San Diego and Imperial counties, for the year ended July 31, filings for the three types of bankruptcy, (Chapters 7, 11 and 13) were up 63 percent over the like 12 months that ended in July 2008.

Protecting Individuals

Chapter 7, the most common filing for protecting individuals, involves liquidation of assets to repay debts. Chapter 13 usually involves repaying debt at a reduced amount over time.