The remnants of Robert E. Colwell Jr.'s dream are listed on a docket sheet in the clerk's office of the U.S. Bankruptcy Court in Alexandria.
In neatly typed numbers with cryptic headings, the epitaph for Colwell's once thriving trash-compactor company reads:
Priority Debt: $8,153.
Secured Debt: $343,169.
Unsecured Debt: $445,488.
Its adds up to debts exceeding assets by $141,978.
The docket sheet also says Compackager is seeking "Chapter 7" relief under the Bankruptcy Reform Act of 1978. That means the company, which once employed 26 people at a rented plant in McLean, wants total liquidation of its debts. It also means Compackager is finished.
Colwell didn't want it to end that way.
Money just got too expensive," Colwell said, tersely explaining his company's failure. "We had been doing $1 million in business a year. We had four years of orders on the books when this thing happened. We were doing well, but we couldn't expand because of money."
Between 1979 and 1980, bankruptcy filings by large and small businesses in the United States increased 56.1 percent, from 29,500 to 46,050. The U.S. figure jumped to 66,332 in 1981, a 44 percent increase over the number of business bankruptcies filed in the previous year, according to records compiled by the Administrative Office of the U.S. District Courts.
Business bankruptcy filings for Eastern Virginia rose from 506 in 1979 to 752 in 1980, a 48.6 percent increase, and 11.4 percent more in 1981, as 838 businesses sought protection under federal bankruptcy law.
In Maryland, the number of businesses filing for bankruptcy increased from 355 in 1979 to 437 in 1980, a 23.1 percent increase. In 1981, 573 Maryland businesses filed for bankruptcy, a 31.1 percent increase over the previous year.
The District of Columbia had the lowest number of business bankruptcy filings, but the highest proportionate increases: 17 in 1979 rising to 28 in 1980, a 64.7 percent jump. Fifty-two District businesses filed for bankruptcy in 1981, an 85.7 percent increase over the number of the previous year.
Colwell's lawyer, Christopher G. Hoge of Washington, tells another part of the story.
Colwell did want to expand, Hoge said, but the bottom fell out of the construction market and Colwell's company, which built custom-made trash compactors for office and apartment buildings, was crushed.
"The way his business operated, he was only paid when the machines were delivered," Hoge said. "Compackager contracted with a customer. They agreed on a price. The company built the machines. No money would change hands until delivery.
"But the problem is that a lot of builders stopped building," Hoge said. That left Compackager with an accumulating inventory and dwindling income, dangerous symptoms in any business. Compackager started taking out expensive, short-term loans to finance its operations. But soon the interest notes came due and the company couldn't pay.
Hoge has handled only a few bankruptcy cases. But he said he believes that what happened to Compackager is so common that it lacks anything approaching profundity. He may be right.
Many area bankruptcy filings are related to downturns in the construction industry. But others, particularly by Washington-based consultant groups and associations, seem related to a reduction in government spending. Examples in the consultant-association category include the National Association of Educational Broadcasters, Ability Search, Inc., and the Washington Executive Group.
The States News Service, a Washington-based news agency providing primary and supplemental national coverage for many newspapers, also filed for bankruptcy this year--under Chapter 11 of the federal code. That meant SNS wanted protection from creditors while it tried to pay its debts.
But the news service, which was losing $25,000 a month, revised its original petition and filed for Chapter 7 protection April 19. Under the new filing, SNS can be absolved of all debt. A smaller news service, the Washington-based Embassy News Communications, Inc., also filed for bankruptcy under Chapter 7, listing $193,894.16 in unsecured debts, and $170 in assets (a desk and chairs valued at $100, a $50 postage meter, and $20 worth of books).
"The bulk of the business bankruptcies around the country involve very small businesses," said Philip Shuchman, a Rutgers School of Law professor who has been examining debtors' use of the 1978 bankruptcy law.
Shuchman said many of the businesses are unincorporated, allowing their proprietors, often one or two people, to receive the same kinds of exemptions usually restricted to personal bankrupts under Chapter 7.
Personal bankrupts under Chapter 7 may keep--hold exempt from confiscation by creditors--Social Security, veterans and disability benefits and alimony. They may also retain $7,500 equity in a home, or double that amount if both spouses file; $1,200 equity in one car, $750 worth of tools used in a trade, $500 for jewelry, and up to $200 for each item of clothing or furniture.
The exemptions have no application to incorporated businesses, such as Compackager, filing under Chapter 7. But, like personal bankrupts under the statute, an incorporated business filing a successful Chapter 7 can wipe out its debts and try again.
That bothers many creditors who say personal and business bankruptcies are increasing under Chapter 7, largely because of the more forgiving nature of the 1978 act. The act, which took effect Oct. 1, 1979, marked the first major revision of U.S. bankruptcy law in 40 years.
Now, credit industry groups such as the National Credit Union Administration, the National Consumer Finance Administration, and the Coalition for Bankruptcy Reform, are petitioning Congress to revise the law again.
The Coalition for Bankruptcy Reform commissioned a study, published this year by the Credit Research Center at Purdue University's Krannert Graduate School of Management, to bolster its argument.
The study focuses on personal bankruptcies and concludes in part that many Americans who file for bankruptcy under Chapter 7 could afford to pay off much of their debts. Robert W. Johnson, staff director for the credit research center, said in an interview that failure to pay consumer debt is contributing to business difficulties.
"Consumers taking bankruptcy owe many small retailers," Johnson said. "If the little retailer isn't getting paid by his customers, then he is having problems paying his bills.
"If the little retailer has too many money problems, he goes out of business. That creates one less customer for wholesalers. If the wholesalers start losing money, they can go out of business, too. This thing could spread. It's like a set of dominoes," Johnson said.
Part of Compackager's $654,832 in assets included a $356,793 item called "contingent and unliquidated claims." That means Compackager was a creditor as well as a debtor. As of March 4, 1982, when it filed its voluntary bankruptcy petition, Compackager still had customers owing $356,793.45--to be exact. If Compackager could have collected that money, it would have reduced its own debt significantly.
Compackager's remaining assets included $225,909 in inventory and $17,660.10 in machinery equipment and supplies.
"Priority debt" in a bankruptcy filing includes wages, taxes, employe benefit contributions and rent deposit owed by the debtor. Part of Compackager's $8,153.33 in priority debt included $908.72 in unpaid employe benefits. The unpaid-benefits amount breaks down to $34.95 for each of the 26 Compackager employes who lost jobs when the company filed for bankruptcy.
A sum of $34.95 may not be much in today's economy. But the unemployed also have bills to pay, and every penny counts.
The rest of Compackager's priority debt, $7,244.61, was listed as unpaid state and local taxes--including $641.94 in retail taxes due the District of Columbia. That money is important to the creditor government, which says it needs every penny it can get to continue providing public services in a recessionary economy.
"Secured debt" is debt with collateral, and creditors can be quite aggressive about recovering losses in this category.
With its $343,169.27 in collateralized debt, Compackager became a prime target of what is known in the bankruptcy business as "adversary actions"--essentially suits and repossessions initiated by creditors.
For example, according to court records, Lawson Products Inc. of Atlanta repossessed "certain hardwares" from Compackager. Peacock Leasing repossessed a 1980 Buick used by the company. Century Steel Products Inc. filed a $7,000 suit "for money owed for supplies of steel delivered to the debtor."
"Unsecured debt" includes purchases made on bank and retail credit cards, also business expenses, utilities and fuel bills, personal installment loans, loans from private parties and back rents.
At least one of Compackager's creditors in this category, The Carey Winston Co. of Bethesda, went to court to collect. The real estate company, which owns the plant site at 1524 Spring Hill in McLean, filed a suit in General District Court in Fairfax to recover $7,000 in back rent from the company. Adversary actions such as these often force a debtor to seek the protection of a bankruptcy court.
Though business bankruptcies have been increasing since 1979, they actually "are a small part of the cases of business failure," said William C. Dunkelberg, chief economist for the Washington-based National Federation of Independent Business.
The federation represents 500,000, mostly small, member companies.
"For every one bankruptcy, there are 10 or 15 other business terminations in which people pay off their bills, close their doors, and stop doing business," Dunkelberg said.
"Creditors don't cause terminations in this regard. People just get tired of trying to make ends meet to keep their doors open. So, they pay up and get out," Dunkelberg said.
Nearly 60 percent of new businesses in the United States begin with personal savings as their major source of capital, according to the economist. Such businesses automatically start off as high-risk ventures, he said.
Fewer people are willing to take that risk in the current economic environment, especially since they can get risk-free earnings by investing in Treasury securities, Dunkelberg said.
"You get a 15 percent rate of real return on the government notes. It's pretty hard to get that kind of return on a business," said Dunkelberg.
Instead of "putting his $10,000 in savings into a business, an investor could put it into the government, where he would earn more money without the sweat, the worry, or the risk," Dunkelberg said. But he said society pays for that kind of activity.
"Here we are, steadily losing established businesses and the jobs they provide. On top of that, because of the government's activity in the capital market, we're not getting new businesses that can provide extra jobs," he said.
Dunkelberg said the government could improve the situation "by taking itself out of capital markets."
"The government is competing against the small businessman," he said. "We're getting people all the time who are coming in and saying, 'Why should I put my money into a small firm when I can get more money out of the government?' "
Compackager's Colwell is familiar with that argument. But he said that despite his present difficulties, he intends to try his luck with the free-enterprise system as soon as he gets another chance.
"I have to stay in business to survive, and I want to start another one," said Colwell, who reluctantly agreed to an interview.
A self-avowed conservative, Colwell said he does not blame anyone for his current circumstance, particularly not President Reagan.
"Don't use me as an example of so-called Reaganomics," he said. "The president didn't run my business. He didn't ruin it either.
"What's happened to this economy and to my business comes from ills that started a long time ago. Money got too expensive. I couldn't make it. It was just one of those things that happened," Colwell said.