Lawyers Prepare for a Spike in Bankruptcy Filings
Firms Gear Up
Coronavirus has taken its toll on the economy and law firms are seeing an onslaught of bankruptcy filings. Across the country, firms are scrambling to hire bankruptcy lawyers. Since the Great Recession, corporate chapter 11 bankruptcy filings have dropped off significantly. In 2009 there were 13,700 cases, but in 2019 there were fewer than 6,000.
Bankruptcy filings are generally slower to reflect economic downturn than more immediate indicators like unemployment claims. After roughly two months of coronavirus shutdowns, bankruptcy filing numbers are now beginning to reflect the damage. In April 2020 there were 560 corporate chapter 11 filings. This marks a 26% increase from last April.
A Shortage of Bankruptcy Lawyers
Because the economy is coming off of a period of strength and growth, the US is now facing a shortage of bankruptcy lawyers. In recent years, few law students have specialized in bankruptcy law because the job market was small.
The generation of lawyers who are retiring right now have expertise in bankruptcy law which firms are missing currently. This is because in 1978, the bankruptcy code went through big changes and lawyers starting their careers at that time learned the new laws in great detail.
Additionally, many of the country’s bankruptcy judges have never faced a period with this many filings. Judges serve for 14-year renewable terms and only about 45% of current judges were serving during the 2008 financial crisis. Some states, like Wisconsin, Washington State, and Connecticut have no judges who experienced the last recession. Most corporate work will happen in New York and Delaware. However, a group of 160 active and retired bankruptcy judges recently wrote to Congress asking that companies be required to file closer to where they are located in order to protect workers and local creditors.
The Other Side of the Storm
As lawyers and judges strive to keep up, bankruptcy filings are rolling in from many different sectors that have been battered by coronavirus.
J. Crew Group and Gold’s Gym are seeking bankruptcy protection. Norwegian Cruise Line (NCLH) recently voiced concerns that it would not have enough funds to make it through the next year, but then raised $3.5 billion in liquidity. Gap (GPS), which also owns the brands Old Navy and Banana Republic, has announced it will not pay rent for the month of April and is negotiating with its landlords to make a plan going forward. JCPenney (JCP) is negotiating with lenders as the company has missed debt payments.
Even for companies in dire circumstances, glimmers of hope remain. J. Crew has reported that its retail sales for the J. Crew and Madewell brands are operating as normal. It has asked the bankruptcy court for $20 million to send to its Asian vendors so that they don’t go out of business and disrupt the company’s supply chain. J. Crew recently updated their website to show a group of people sailing with the words “Blue skies ahead” as a tagline. Hopefully this slogan applies to J. Crew, and other companies hoping for the clouds to clear.
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