Will the Bankruptcy Tsunami Arrive in 2021?

When the coronavirus pandemic hit, many people assumed that massive job losses would trigger a bankruptcy tidal wave. As experienced Plantation bankruptcy attorneys, we suspected the same. However, the number of consumer and business filings has not been unusual.

Still, many people are expecting the tsunami to arrive in 2021. According to an article in Fortune magazine, the number of business bankruptcies is set to rise dramatically after the New Year. But the wave will not sweep away all businesses. Instead, family and small businesses look to suffer the most.

The article highlights another problem—the lack of bankruptcy judges to oversee the orderly restructuring of debt.

So Far, Bankruptcies Are Down

The Fortune article highlights academic findings that bankruptcies were down through August 2020 compared to a year ago by roughly 1 percent. Many larger companies have gone into Chapter 11 reorganization, and they gobble up all of the headlines. Companies like Gold’s Gym, JCPenney, and Neiman Marcus have all filed. However, this mini-wave has created an impression that all businesses have collapsed, which isn’t true.

Nevertheless, these professors predict that 2021 will see business bankruptcies increase an astounding 140%. For one thing, the country could be on the verge of a double dip recession. For another, the Payroll Protection Program might not be renewed, which will increase financial stress on smaller companies, which are already struggling.

Are There Enough Bankruptcy Judges?

If the number of bankruptcies really balloons in 2021, then bankruptcy judges could stagger under their heavy caseloads. Bankruptcy judges are federal judges who serve for a term of years (instead of for life, like other federal judges). Congress would have to step in to create more judgeships if they are overwhelmed by the number of filings.

In a typical Chapter 7 liquidation, the judge plays a limited role. However, a Chapter 11 reorganization is different. Judges need to approve a reorganization of debts and resolved disputes between creditors. Because a business continues to operate in Chapter 11, it might seek financing from lenders. Judges must approve any debtor-in-possession borrowing.

When judges become overwhelmed, they can make some mistakes. For example, Fortune mentions Circuit City’s bankruptcy a decade ago. The court in that case approved a $1.1 billion loan, but the company chose to liquidate a mere two months later. Heavy caseloads lead to errors, which can harm businesses trying to work through bankruptcy. We can see many small businesses struggling to take out debt if the judge is not 100% focused on their case.

How to Protect Yourself

If you are thinking of filing for bankruptcy as an individual or a business, you should meet with an attorney as soon as possible. The more assets you have, the more you will need careful planning. Someone with few possessions can file a Chapter 7 liquidation fairly quickly. But wealthier individuals and small business owners should fully review their options before deciding how to proceed.

With the court system’s docket getting clogged, it is ever more important to have an experienced attorney guide you through the process. Please call the Plantation bankruptcy attorneys at Nowack & Olson today 888-813-4373 to schedule a free consultation.

Resource:

fortune.com/2020/11/24/bankruptcy-covid-economy-small-business/

https://www.floridabankruptcynow.com/should-you-seek-dismissal-of-your-chapter-13-bankruptcy/