The Biggest Bankruptcies in America’s History Prove No One Is ‘Too Big to Fail’
What does it mean when a huge business declares bankruptcy? Contrary to popular belief, it doesn’t necessarily indicate that the business will close. Bankruptcy protection seeks to avoid closure, if possible.
Individuals and small businesses claim bankruptcy all the time. Simple put, bankruptcy is a legal status stating that a person or entity cannot possibly pay off the debts they owe to creditors. Of course, not all debts can be dispelled through bankruptcy and not everyone qualifies.
When it comes to large corporations, Chapter 11 bankruptcy offers the business the chance to restructure and hopefully recover from past financial mistakes. The business continues to operate but all major financial decisions must be approved by the bankruptcy court.
There are some businesses that are so large and make so much money that it seems impossible they could be struggling under the weight of debt. But just because a company is making money, it doesn’t mean they’re financially stable. Ahead, check out the most high-profile and shocking bankruptcies in the business world from smallest to largest.
Total assets pre-bankruptcy: $33.3 billion
Industry: Brokerage services
This New York-based financial services company had about $33 billion in assets – but scandal struck. CEO and chairman Phillip R. Bennett was accused of hiding $430 million worth of bad debts from auditors and was paying those bad loans with company funds. The company filed for bankruptcy in 2005 and Bennett was sentenced to 16 years in federal prison.
Next: Financial Corp. of America
14. Financial Corp. of America
Total assets pre-bankruptcy: $33.8 billion
Industry: Financial services
You’d think a financial services company would have a better handle on their finances – but you’d be wrong. The Financial Corp. of America received $2 billion worth of federal bailout money during the savings and loan crisis of the 1980s. They had $34 billion in assets prior to filing for bankruptcy in 1989.
Total assets pre-bankruptcy: $34.9 billion
Industry: Petroleum and petrochemicals
Prior to filing for bankruptcy protection in 1987, Texaco had $35 billion in assets. But when a court found that the petroleum and petrochemicals giant owed Pennzoil $10.5 billion in damages after a merger, they had no choice but to file. Texaco paid up $3 billion of what they owed and remained in bankruptcy for 361 days.
Next: Pacific Gas and Electric Co.
12. Pacific Gas and Electric Co.
Total assets pre-bankruptcy: $36 billion
Industry: Electricity and natural gas
A change in the regulation of California’s public utilities forced PG&E into bankruptcy in 2001. Long story short, a drought put a stop to cheaper hydroelectric power and the energy company was forced to buy out-of-state electricity to meet customer demand. Ultimately, the crisis cost PG&E and the state of California, who attempted to bail them out, between $40 and $45 billion. The company came out of bankruptcy in 2004.
Next: Thornburg Mortgage
11. Thornburg Mortgage
Total assets pre-bankruptcy: $36.5 billion
Industry: Residential mortgage lending
Like so many others affected by the subprime mortgage crisis, New Mexico-based Thornburg Mortgage struggled with finances starting in the summer of 2007 when the value of the mortgages they had started to plummet. After filing for bankruptcy, they sold or liquidated all remaining assets to pay off creditors. Their original assets were worth $36.5 billion.
Total assets pre-bankruptcy: $39.3 billion
Industry: Car manufacturer
They may not be the biggest car manufacturer to declare bankruptcy (we’ll get to that later), but the financial crisis at Chrysler affected the nation just the same. The iconic car manufacturer filed for bankruptcy in 2009 when they had assets of about $39.3 billion. The Obama administration helped the process following several years of layoffs and job cuts.
Next: Energy Future Holdings
8. Energy Future Holdings
Total assets pre-bankruptcy: $40.9 billion
Industry: Electric utilities
In 2014, the largest power network in Texas owned $40.9 billion in assets. But that impressive amount wasn’t enough to save them from bankruptcy. They filed for Chapter 11 protection in 2014 after their creditors denied a plea to restructure their balance sheets.
Next: MF Global
9. MF Global
Total assets pre-bankruptcy: $41 billion
Industry: Financial derivatives broker
Even the least financially savvy person knows that your assets should well exceed your debts. When MF Global filed for bankruptcy protection in 2011, those two numbers were almost identical – they owed $40 billion and only had $41 billion in assets.
The company practiced shady dealings when they bet their clients’ money on European government bonds. Around $1.6 billion in client money went missing and MF Global had to pay back $1.2 billion in compensation.
Next: Conesco, Inc.
7. Conesco, Inc.
Total assets pre-bankruptcy: $61.3 billion
Industry: Financial services
Sometimes bankruptcy is spurred by unfavorable financial choices. At least, that’s what happened to the life annuity and supplemental health insurance bigshot Conesco. This company ended up in bankruptcy because of a bad acquisition – they acquired Green Tree Financial, a company that financed mobile homes, in 1998.
The company renamed and regrouped following their bankruptcy filing and re-emerged as CNO Financial Group in 2010.
Next: Enron Corp.
6. Enron Corp.
Total assets pre-bankruptcy: $65.5 billion
Industry: Energy trading
In 2001, the fall of Enron was the biggest United States bankruptcy to date. It was also rife with scandal as the energy trading company was accused of covering up losses and manipulating their financial data. They had $65.5 billion in assets when they filed for Chapter 11 bankruptcy protection.
After many high-ranking executives were officially charged with financial crimes, the company regrouped with a name change. The newly christened Prisma Energy International later sold to Ashmore Energy International in 2006.
Next: CIT Group
5. CIT Group
Total assets pre-bankruptcy: $71 billion
Industry: Commercial lending
This commercial lending group was unsuccessful in finding funding in November 2009 during the global recession and became the victim of bad loans. Faced with the prospect of closing their doors, the company filed for bankruptcy protection and agreed to a reorganization plan that reduced their total debt by $10 billion.
Next: General Motors
4. General Motors
Total assets pre-bankruptcy: $82.2 billion
Industry: Car manufacturer
Perhaps one of the best known and most cringe-worthy bankruptcies happened in the auto world in 2009. GM was the largest United States-based manufacturer to file for Chapter 11 bankruptcy protection in history.
So what happened? The high costs of labor, mounting debt, and a global recession combined into a perfect storm that ultimately decimated the company. In the end, a government bailout saved them, and cost taxpayers $11.2 billion.
Next: WorldCom, Inc.
3. WorldCom, Inc.
Total assets pre-bankruptcy: $103.9 billion
Not all bankruptcy happens because of innocent mistakes – in fact, sometimes it’s downright criminal.
The telecommunications company WorldCom filed for Chapter 11 bankruptcy after admitting to major accounting fraud that led to a $3.8 billion loss. They had $103 billion in assets at the time of filing. Bernie Ebbers, the man responsible for building the company, went to jail for 25 years following the investigation. Meanwhile, the company rebranded as MCI and got bought out by Verizon in 2005.
Next: Washington Mutual
2. Washington Mutual
Total assets pre-bankruptcy: $327.9 billion
Industry: Mortgage lender
It was risky business operating as a mortgage lender in the early 2000s. In the case of Washington Mutual, it proved disastrous. This Seattle-based lender was responsible for doling out shockingly high mortgages to people who couldn’t afford to repay them. It was the largest bank failure in history.
When WaMu filed for bankruptcy, they had $307 billion in assets and $188 billion worth of deposits. They were placed into a receivership by the Federal Deposit Insurance Corporation after withdrawing $16.7 billion over a period of just 9 days.
Next: Lehman Brothers Holdings, Inc.
1. Lehman Brothers Holdings, Inc.
Total assets pre-bankruptcy: $691 billion
Industry: Investment bank
Before 2008, no one believed Lehman Brothers would ever fail. But like so many others, Lehman fell victim to the global credit crisis and sub-prime mortgage debacle that affected thousands of businesses. This mammoth investment bank had an incredible $639 billion in assets and $619 billion worth of debt when they filed for bankruptcy.