According to the American Bankruptcy Institute, Chapter 11 filings are expected to spike in coming months, and if the economy remains sour, business failures and bankruptcy filings may break all-time records in 2021. (Photo by Jon Cellier on Unsplash)

Since the arrival of COVID-19 on the world stage, well-known and well-established companies have fallen like dominoes to bankruptcy: Pier I Imports, Hertz Inc., Stage Stores, Gold’s Gym, GNC, Men’s Wearhouse and many others.

Across the country, according to BankruptcyData, which tracks numbers for the restructuring industry, commercial bankruptcies have increased by well more than half this year, with at least 207 very large companies each with more than $50 million in assets throwing in the towel prior to Sept. 1. According to the American Bankruptcy Institute, Chapter 11 filings are expected to soar even higher in coming months, and if the economy remains sour and unemployment high, business failures and bankruptcy filings may break all-time records in 2021.

Untold numbers of small businesses also have been brutalized by the pandemic. According to the U.S. Census Bureau, nearly eight in 10 reported suffering “moderate-to-large” negative impacts even before the latest spike in COVID-19. The U.S. Small Business Administration’s massive Paycheck Protection Program helped to keep many afloat for a while, but it came to an end in April. Scores of subsequent small business failures have been difficult to track, as many have occurred outside bankruptcy court.

“(In many cases) probably, all you need to do is call the utilities and tell them to turn them off and then close your door,” William Dunkelberg, chief economist at the National Federation of Independent Business, told Bloomberg News recently.

While many small business closures might occur quietly, they’ll have an alarming effect on the economy. According to the SBA, small businesses account for nearly half of jobs and about 44% of economic activity across the United States.

Troubling financial realities facing many people and businesses hit hard by the pandemic were discussed in a recent JR Now forum organized by The Journal Record, with input offered by attorneys at the firm of Crowe & Dunlevy experienced in helping clients sort through options. William H. Hoch, who chairs the firm’s Bankruptcy & Creditor’s Rights practice group, and Crissie Stephenson, who assists individuals and companies in restructuring matters and bankruptcy-related litigation, spoke about the current environment with nearly a quarter of American families reporting a loss or anticipated loss of employment income and thousands of business owners struggling to keep bills paid and doors open.

Both attorneys said they’d witnessed the “paralyzing fear” that can consume a person facing the possibility of business failure. However, they insisted that people can and do survive tough times. The first step is to remain clear-eyed as to realities and to reach out for assistance well before situations might become dire.

“The failure of a business in a situation like people are experiencing right now is very, very common. They are not in this alone,” Hoch assured. “To think that you can sidestep this is just not possible. It’s going to impact everybody.”

For some, early communication with banks or other creditors might yield positive results.

“What we have experienced … is that there are so many people in difficult situations, and the banks prefer communication and trying to work something out rather than bankruptcy or something akin to a bankruptcy,” Hoch said.

For some, however, it may be important to acknowledge that the pandemic will end up having more than just a temporary effect on bottom lines. Stephenson said businesses in the hospitality industry have been especially affected, to the point that outlooks for 2021 and beyond may be starkly different than they were at the outset of 2020. Many hotels, for example, may not be able to count on business travel accounting for 40% of business in the future, as it has in the past.

“There’s no sort of magical ball prediction as to when that kind of travel is going to return, if it is ever going to return,” she said.

The attorneys said they had received inquiries from businesses in the hospitality sector, as well as from firms in the oil and gas industry, from niche businesses in the health care industry and others. Some small business owners have depleted their personal savings and even borrowed heavily from family members or friends trying to hold out for better days. A fear, the lawyers said, is that some may wait too long to reach out for help and that windows of opportunity for working things out may close.

“That’s the worst thing they can do. You need to start dealing with it immediately,” Stephenson said. “If you do get a default letter … ignoring it is the absolute worst thing you can do.”

Hoch agreed. He said people in such circumstances are well-advised to get their financial records and statements in order with an accountant, to keep up with communications with creditors and to reach out for legal assistance earlier rather than later. There may very well be strong alternatives to declaring bankruptcy and closing shop.

“I guarantee you, as soon as they walk out of those meetings they will feel better, because they have an action plan,” Hoch said. “Every time, you can see the relief.”

If renegotiating or restructuring debt is not possible, placing a business in receivership – under the care of a trustee to wind down affairs – could be an option. If bankruptcy seems inevitable, there are different kinds to consider. Chapter 11 describes when an owner opts to reorganize debt, working out payment plans with creditors often for reduced amounts. In such cases businesses may remain open. Chapter 7 describes when an owner completely liquidates a business and any proceeds are used to pay debts. Afterward, the business can no longer operate.