As the coronavirus (COVID-19) pandemic continues, many small businesses are filing for bankruptcy to help reorganize their debt and keep creditors at bay. The types of companies being affected include small mom and pop shops, as well as larger corporations. Hertz and J. Crew, recently filed for Chapter 11 bankruptcy, and the number of businesses following suit are expected to rise.
According to Edward I. Altman, the man responsible for creating the Z score, a figure that is used to predict business failures, the year 2020 is expected to set a record for ‘mega bankruptcies,’ meaning businesses with $1 billion or more in debt will be filing for bankruptcy protection. The effects of this could be devastating to the U.S. economy.
Even though many states are reopening and ending their lockdowns, any small economic boost that is expected will not hold off on these filings, say many financial experts. This pandemic has hit large corporations harder than expected and many are past the point of being saved.
It is expected that the number of Chapter 11 bankruptcy filings in 2020 will far surpass the 6,800 companies that filed for Chapter 11 protection just last year. This increase could bring about a major economic downtown comparable to the Great Depression.
Many companies are seeking Chapter 11 bankruptcy protection to restructure their businesses, work out payment plans for their debt, to stay open and in business. Others, however, are past the point of being able to restructure and are going through bankruptcy liquidation, instead.
Some of the harder hit businesses are ones that have been last to open under state shutdown orders, including gyms, like 24-Hour Fitness, a business that declared bankruptcy this week, closing 100 of its locations nationwide due to the coronavirus.
One major problem that has come to light is just how strictly these companies are running their budgets, including how deep they are in debt. The pandemic seemed to have exposed these underlying problems within these businesses. For example, both J. Crew and Neiman Marcus have been said to be struggling with heavy debt loads on top of dealing with the increased online purchasing behaviors of their most loyal shoppers. Financial experts believe that behavior like this will result in an explosion in corporate debt in 2020.
So far, many companies have managed to put off filing for bankruptcy by taking out lines of credit, furloughing workers, and taking advantage of COVID-19 relief programs offered by the state and federal government. However, these benefits are running out and set to expire, meaning this money will only last for so long. Once the money runs out, financial analysts anticipate a COVID-19 cliff to follow. The results could very well be devastating to the national economy. It remains to be seen which companies will follow in the footsteps of Hertz and J. Crew.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
Source: New York Times – A Tidal Wave of Bankruptcies is Coming