Bankruptcy in a COVID World
By Max L. Rosenberg, Bankruptcy Attorney, 203.870.6700 MaxLRosenberg@RWHattorneys.com
In the bankruptcy world, it is generally understood that the four “D”s account for the majority of petitioner’s reasons for filing. They are 1. Divorce, 2. Death 3. Discharge of job, 4. Disease (or Sickness). Obviously, any one of these four factors can throw a person’s life into turmoil. Today, every one of us is already starting out with #4. The pandemic. COVID-19.
As the pandemic continues to sweep across the globe, the greater ramifications on the business health of our society are becoming more and more apparent. On the Bloomberg news site, Financial Analyst, Margaret Ngo, writes, “…small businesses are disappearing by the thousands amid the Covid-19 pandemic, and the drag on the economy from these failures could be huge.” Yelp’s data shows more than eighty thousand companies permanently closed between the beginning of March and the end of July. Roughly, sixty thousand were local businesses or firms with fewer than five locations. According to the American Bankruptcy Institute, eight hundred small businesses filed for Chapter 11 from mid-February to the end of July.
It’s a grim time for all business owners and not just in the United States. Norwegian Air has petitioned an Irish court to oversee a restructuring of its enormous debt as it struggles to avoid being shuttered. El Al, the Israeli airline is rumored to be seeking similar relief.
In England, Regal Entertainment Group owner Cineworld Group is in talks with investors for financial bailouts after almost a year of empty theaters. If that’s not dark enough, almost one hundred thousand sexual-abuse claims have been filed against Boy Scouts of America while their continued survival currently rests in the bankruptcy court. According to Bloomberg, year to date, 227 companies with more than $50 million in liabilities have filed bankruptcy, the most since 2009, when 272 similar companies filed.
So how does this affect your life and your family? The answer is in every way.
This will continue to affect the government, the places you shop (or used to shop), the holidays you intend to spend together, and for many most importantly, the debt you continue to accrue. Rather than bemoan the possible option of bankruptcy, I would ask that people who are afraid, ashamed, and dismayed at the possibility, reexamine this concept in the best possible light.
If you are eligible it may be the salvation you are looking for. Even if you opt to file and successfully discharge your debt, I want to remind you that we do not know how long this crisis will last. You can only receive a discharge of your debt in a chapter 7 bankruptcy once every eight years. Tighten your belt, spend less. Try to find a way to save wherever you can. Don’t make loans or allow yourself to be in a position where people owe you money. Bankruptcy may offer the respite that we need to survive an avalanche of debt, but it will take real-life adjustments to get through the long-haul.
I often tell my friends, family, client, and anyone else who will listen to me that bankruptcy has been with us as long as civilization has been around. It is a pressure release valve used to control and limit the pressures in our system that build up during economic downturns and health crises. Without it, in my opinion, chaos would ensue. If debt has become insurmountable and overwhelming, at least get a proper evaluation. A person should always be aware of their options.
With that in mind, how has the pandemic changed bankruptcy? Here is the silver lining.
Under the Federal Coronavirus Aid, Relief and Economic Security Act, debtors already in a Chapter 13 can now extend the length of the re-payment plan to seven years. Stimulus checks will not affect eligibility on the Chapter 7 Means Test or count toward disposable income for Chapter 13s. And most conveniently of all, original or wet signatures and in-person review are now permitted to be done virtually, as are the 341 Meetings.
When the Relief Act ends with the crises, Bankruptcy Court hearings will again be in person. Normal requirements will resume.