September 10, 2020

What to Expect From the Anticipated Surge of Business Bankruptcies in Nevada

Businesses of all sizes and spanning a range of industries are suffering the economic fallout of COVID-19. This can be seen not only in layoffs and furloughs, but also in increased business closures and bankruptcies. A Bloomberg report published in early July revealed that nearly 200 businesses cited COVID as a factor in declaring bankruptcy. Unfortunately, this is only the beginning.

Businesses of all sizes and spanning a range of industries are suffering the economic fallout of COVID-19. This can be seen not only in layoffs and furloughs, but also in increased business closures and bankruptcies. A Bloomberg report published in early July revealed that nearly 200 businesses cited COVID as a factor in declaring bankruptcy. Unfortunately, this is only the beginning.

Edward I. Altman—best known as the force behind the Z-score method of predicting business failures—anticipates a surge of bankruptcies this fall and winter. He expects mega bankruptcies involving over $1 billion in debt to set records, while bankruptcies over $100 million could rival those filed during the 2008 crisis. He is far from alone in this outlook, with many other financial experts offering a grim look ahead at the remainder of 2020.

What's Driving the Increase in Bankruptcies?

On the surface, the issues behind the slew of bankruptcies are obvious: the initial COVID-related quarantines and social distancing brought economic activity to a halt, and businesses have yet to recover. 

The pandemic triggered a downward spiral, in which quarantine-sparked closures prompted lay-offs, followed by even less consumer spending. Businesses in the travel and hospitality industries, in particular, have suffered to an unprecedented degree.

While some experts anticipated a U-shaped economic recovery, Professor Altman believes the damage has been done. He tells the New York Times, "The really hurting companies are too far gone to be saved." Companies on the brink of bankruptcy may be pushed over the edge by ongoing surges in cases and the need for additional quarantines or other strict measures.

As in 2008, the increased bankruptcies may reveal deep-rooted problems that existed long before the pandemic. Although bankruptcies were on the decline as of 2019, many businesses maintained staggering levels of debt. COVID simply pushed them over the edge.

How Can Businesses Navigate Bankruptcy During COVID?

The increase in bankruptcies may be cause for alarm, but such measures do not necessarily doom businesses to failure. Many may find success with Chapter 11, which is commonly referred to as reorganization bankruptcy. This approach involves negotiating debt payments that allow businesses to remain open.

Unfortunately, many companies will be forced to opt for liquidation, in which debts are resolved primarily through equipment or property sales. In a recent letter to Congress, a group of academics warned that, without significant reform, liquidation will become increasingly common among small businesses, sparking additional layoffs and further economic uncertainty.

Strong legal representation can make all the difference, especially for business owners desiring favorable agreements with creditors. A Nevada business bankruptcy attorney can advise companies on whether reorganization is advisable and potentially successful.

Excessive optimism in restructuring can lead to refiling, which is not only costly, but also needlessly more stressful. Additional considerations may involve timing based on Paycheck Protection Program loans and other stimulus programs.

Businesses at risk of closing should begin looking into bankruptcy and other options sooner rather than later, especially as the upcoming rise in bankruptcies could make the process that much more difficult to navigate.

There's no substitute for proactive legal assistance, so don't hesitate to seek guidance from the commercial bankruptcy attorneys of Schwartz Law. Contact us today to get started with a consultation.