In 2020, with the onset of the pandemic, many insolvency professionals anticipated that the ensuing blows to the domestic and world economies would trigger a veritable “tsunami” of bankruptcy filings. As things turned out, government stimulus programs, coupled with low interest rates, a high level of creditor forbearance and the ability of many businesses to pivot to remote, online operations, allowed many businesses not only to survive but also to thrive and withstand the many impacts of the pandemic. That, however, may be changing, as bankruptcy filings are predicted to rise in 2023.
So the tsunami never arrived. According to the Administrative Office of the U.S. Courts, over 544,000 bankruptcy cases were filed in 2020 including over 21,000 cases filed by businesses. In 2021, the total number of bankruptcy cases declined to roughly 413,000, of which approximately 14,000 were business filings. These numbers represent a 24% drop in overall cases and a 33.7% drop in business cases. More tellingly, there were 60 “mega” bankruptcy cases (those with over $1 billion in reported assets) in 2020, but only 20 such cases in 2021. See Trends in Large Corporate Bankruptcy and Financial Distress Midyear 2022 Update, published by Cornerstone Research.
Bankruptcy filings during the first three quarters of 2022 have continued the downward trend. Through the end of September, 284,773 bankruptcy cases were filed (although business cases rose to nearly 16,000). During the first half of this year only four mega cases were filed. See Trends in Large Corporate Bankruptcy and Financial Distress.
But good news never lasts forever. As we look forward to 2023, financial concerns have shifted to the more lasting economic effects of the pandemic – persistent and painful inflation, rising interest rates, continued supply chain issues, and employee shortages. There is much uncertainty on the horizon as the business world adjusts to these challenges and – not surprisingly – many financial analysts expect business bankruptcy filings to rise in the new year. In particular, the retail, hotel, and real estate investment/development sectors may see an increase in out-of-court and bankruptcy restructurings to address high debt levels, rising interest rates, supply chain issues, and decreased landlord willingness for forbearance. Early signs point in this direction, as the American Bankruptcy Institute reported that commercial bankruptcy filings in November 2022 increased 74% over the same time period last year (although, notably, the chapter 11 bankruptcy filings by cryptocurrency exchange FTX and its affiliates accounted for more than 100 or roughly one-third of those new filings).
If your business is being challenged by the current economic environment, the Hirschler bankruptcy group is ready to discuss your situation and help identify strategies and solutions, including a chapter 11 or chapter 7 bankruptcy, formal dissolution and wind-down under state law, or out-of-court workout. We can also advise you and take the steps needed to protect your rights as a creditor, landlord, lender, investor, or other stakeholder, whether the debtor is in or out of bankruptcy.
Luis F. Ruiz