Bankruptcies in these Precarious Times of COVID-19

During these unpredictable times, COVID-19 seems to have impacted virtually every sector of the U.S. economy; from the unemployment rate, to the U.S. gross domestic product, and even at times the grocery aisles and gas stations.  With the uncertainties of COVID-19 the impact of future Chapter 11 bankruptcy filings has also been unpredictable.

Epiq AACER (“Epiq”), a bankruptcy information services platform, and the American Bankruptcy Institute (“ABI”), the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency, have partnered together to provide the most current bankruptcy filing data for analysts, researchers and journalist.

Epiq reported that commercial Chapter 11 filings increased 29% in 2020 compared to 2019 with over 7100 companies filing for Chapter 11 in 2020, the most since 2012.  Yet, despite COVID-19, the number of consumer bankruptcies actually declined by about 31% in 2020 when compared to 2019.  Additionally, 2020 set a new record which saw 62 public and private companies that had assets of $1 billion or more file for bankruptcy.  This number topped the previous record of 58 in 2009 during the Great Recession, according to New Generation Research, a Boston firm that operates the BankruptcyData website.

According to Epiq’s numbers, by May 2021, the total commercial chapter 11 filings had decreased 66% from the previous year.  Total commercial filings across all chapters decreased 31% in May 2021.  On a month-to-month basis, May’s commercial chapter 11 filings represented a 14% decrease from filings in April 2021.  Total commercial filings across all chapters were also down 14% from April 2021.

Additional analysis in May 2021 from the ABI shows that the 2,000th case was filed under the new subchapter V of Chapter 11 of the U.S. Bankruptcy Code, established by the Small Business Reorganization Act of 2019 (“SBRA”).  The SBRA went into effect on February 19, 2020, to provide business debtors with a more streamlined path for restructuring their debts.  The CARES Act was subsequently enacted on March 27, 2020, which increased the eligibility debt limit for small businesses looking to file under the SBRA’s subchapter V from $2,725,625 to $7,500,000.  The threshold was originally scheduled to return to $2,725,625 after one year, but was extended to 2022 with the enactment of the COVID-19 Bankruptcy Relief Extension Act on March 27, 2021.

Reflective of the unpredictability during these times of COVID-19, the commercial Chapter 11 filings in June 2021 actually increased by 42% from the filings in May 2021.  Total commercial filings across all chapters in June 2021 increased 11% from commercial filings in May 2021.  The total commercial filings across all chapters for the first half of 2021, however, represented a 30% drop from the commercial filings for the first half of 2020. The total commercial chapter 11 filings during the first six months of the year 2021 were a 40% decrease from the total commercial chapter 11 filings during the same period in 2020, according to data provided by Epiq to the ABI.

Locally, here in Nevada, the annual case filings provided by the United States Bankruptcy Court for the District of Nevada show that as of July 2021, Chapter 11 filings are down by nearly 33% from 2020.  Chapter 11 filings in the first 7 months of 2021, however, are identical when compared to 2019.

While there are reasons for optimism, such as the nearly 4 million jobs added so far this year according to U.S. Department of Labor statistics, there are also reasons to be cautious with the rampant Delta variant wreaking havoc on the U.S. economy.  Will the fallout from COVID-19 continue to show improvements and causes of optimism or will the Delta variant, or maybe a new unknown mutated variant, cause the shutdown mandates to reappear?

Read our upcoming blogs to find out.

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