Natural gas and electricity provider PG&E Corp. of Northern California recently declared its intention to file for bankruptcy protection under the U.S. bankruptcy code, Chapter 11. If that happens, the valuation of the filing may approach the size of the bankruptcy of the utility company in 2001 on some $36 billion in assets, as seems unavoidable.
There are two main flavors of U.S. bankruptcy protection: Chapter 11, which preserves the assets of the company while reorganizing its business and negotiating with its creditors, and Chapter 7, which liquidates the assets of the company in order to pay its creditors.
The difference is demonstrated by a single recent illustration. In September 2017, toy retailer Toys' R' Us initially filed for Chapter 11 protection and obtained $3 billion in debtor-in-possession funding to keep the business going through the coming holiday season. In March of 2018, they forced the toy store to liquidate and the last store closed in mid-May when it became clear to creditors that the holiday season was a disaster. The company ended up paying only $180 million, less than 25 cents on the dollar, to vendors who were owed some $800 million.
And while one of the biggest ever retail bankruptcies was the Toys "R" Us bankruptcy, it isn't even in the running for a top 10 or even top 50 listing. The very large numbers are reserved for the failing banks and car manufacturers that were buried in 2008's financial crisis. The financial crisis was directly linked to six of the 10 biggest U.S. bankruptcies of all time.
Here is a list of the 5 biggest bankruptcies of all time in the United States. At the time of the bankruptcy filing, we included the date of the bankruptcy file, the form of filing and the valuation of the assets of the company, along with a brief explanation of how it all went down.
1. Lehman Brothers
Date of filing: September 15, 2008 Type of filing: Chapter 11 Asset value: $691.06 billion
The first — and largest — of bank failures, the once-mighty investment bank invested heavily in subprime mortgages, and when the value of those assets went to zero, Lehman had no choice but to close the 158-year old bank. Bits and pieces of the company remain among other financial firms like Barclays and Nomura Securities. The bank's failure was the subject of a book and movie both titled "Too Big to Fail."
2. Washington Mutual
Date of filing: September 26, 2008 Type of filing: Chapter 11 Asset value: $327.91 billion
Washington Mutual was a savings bank and savings and loan association until a 10-day bank run saw depositors withdraw more than $16 billion in June of 2008. That forced the federal government to put the bank in receivership, which resulted in JPMorgan's purchase of most of the bank's branches. The savings bank was founded in 1889.
3. WorldCom
Date of filing: July 21, 2002 Type of filing: Chapter 11 Asset value: $103.91 billion
At one time, Worldcom was the second-largest telecom provider in the United States. In 2000, however, then-CEO Bernard Ebbers ran into some difficulty when presented with a margin call on his personal investments. One thing led to another, Ebbers was replaced and an accounting scandal eventually led to Worldcom's demise.
4. General Motors
Date of filing: June 1, 2009 Type of filing: Chapter 11 Asset value: $91.05 billion
General Motors Corp. (NYSE: GM) is the largest U.S. industrial corporation ever to file for bankruptcy protection. The company received a federal bailout $68.2 billion in 2009 ($51 billion for the automaker and the remainder for its GM financing arm). After all the arithmetic was finished, the bailouts of GM ended up costing U.S. taxpayers some $8.9
5. CIT Group
Date of filing: November 1, 2009 Type of filing: Chapter 11 Asset value: $80.45 billion
The financial services firm offers both commercial and consumer banking that got caught in the subprime mortgage lending fiasco. It quickly became a bank holding company and received some $2.3 billion in federal bailout funding. CIT exited bankruptcy just over a month after it first filed for protection