It’s never good news when the bankruptcy industry is booming
As a bankruptcy lawyer, Dennis J. Shaffer sees people at one of the most difficult times of their lives. And with the economy hampered by the pandemic, it is getting busier and busier. Take, for example, his client in the personal services industry (who, understandably, requested that his name not be disclosed).
Almost a year ago, shortly after the coronavirus first landed on our shores, the client started having difficulty paying the company’s bills, including loan payments. “In January, I realized that the debt structure was getting harder and harder to follow,” says the client.
The business was closed for three and a half months due to non-essential business shutdown orders, and then, once reopened in July, struggled with the shortening hours and lack of space to meet social distancing mandates. Working closely with Shaffer, the business owner chose to file Chapter 11. But the owner still doesn’t know how it’s going to turn out.
“[The bankruptcy] added to the uncertainty of tomorrow, because the virus is still with us and fears continue, ”admits the client. “In addition, the notification of bankruptcy caused a negative reaction from our customers. Employees, customers, friends and family look at you differently.
But Shaffer, a 20-year veteran in the field who has consistently been recognized as one of “America’s Best Lawyers,” says the company needs to reframe the way it thinks about bankruptcy, especially as the pandemic is wreaking havoc on more. companies. He points out that while paying off creditors, it can also give debtors a fresh start. And he prefers to refer to himself as a “restructuring professional” rather than as a bankruptcy lawyer, since restructurings can be carried out without declaring bankruptcy.
“Most restructuring professionals see themselves as problem solvers,” he says. “Bankruptcy is not a bad word. Even though it has an extremely negative connotation, it really is a tool. The various chapters of the bankruptcy code offer specific relief which are great tools to help alleviate customer problems.
And this rethinking of the bankruptcy stigma he refers to can possibly happen simply because of sheer theft.number of upcoming filings: Shaffer and others in the field know that a tidal wave of corporate bankruptcies is on the horizon.
“BANKRUPTCY IS NOT A BAD WORD. EVEN IF IT HAS EXTREME NEGATIVE CONNOTATION, IT IS REALLY A TOOL.
As commercial bankruptcy filings increased in September 2020, a report by the American Bankruptcy Institute notes that nationally, the total number of deposits fell 35% from the same month in 2019, a trend reflected in Maryland. But this is misleading: it is because the courts, once closed, are now cluttered with backlogs of cases. Worse yet, others facing financial failure can’t even afford the application fees.
Alessandro Rebucci, associate professor at the Carey School of Business at Johns Hopkins University and an expert in finance and economics, says the pandemic is unique. Normally, bankruptcies are correlated with unemployment.
“The COVID recession is like no other due to the initial government support,” Rebucci said, citing the CARES law, payroll protection loans and loansuh tolerance. “All federal programs ultimately help keep the economy as a whole and its parts afloat.” But it won’t last.
“Many large companies have already succumbed,” he says. “We are not out of the woods, and we could easily see a delayed wave of defaults and bankruptcies from 2021 to 22.”
Shaffer is already seeing an increase in customer activity and bankruptcies in all small and medium businesses, many family businesses, including salons, restaurants and franchises. He predicts that some businesses will shut down while others will avail themselves of bankruptcy protections.
“One of the first questions I ask clients is, ‘What do you want to accomplish? What is the ideal outcome for you? ‘ Shaffer says. Bankruptcy is often a solid option, but it includes reluctance. “[Bankruptcy] presents more opportunities to help people, but it’s more personal, ”he says. (It’s also more public – bankruptcies are listed in The daily record.)
Sometimes, Shaffer says, creditors negotiate with debtors without the need for bankruptcy protection. For better or for worse, the creditor is in partnership with the debtor and it is up to the creditors to find a solution, even if they cannot collect a debt in full.
Otherwise, there are the different chapters. Typically, individuals file under Chapter 7, to clear all debts, or 13, to restructure and pay off their debt over time. Chapter 11 can be used by an individual or business to restructure existing debt in a way that hopefully keeps the business open, although it could also mean that the business would have to liquidate its assets. to pay its creditors.
One of the difficulties with a small business bankruptcy is that the assets are often backed by personal collateral. Not only is the business at stake, but creditors can also attack personal property, such as an individual’s house. Even here, Shaffer says, there are solutions and opportunities to negotiate with creditors.
As painful as the process is for those facing financial bankruptcy, now is the perfect time to file for bankruptcy.
The Small Business Reorganization Act was passed in February 2020, making filing faster and cheaper for small businesses while providing a greater likelihood of saving the business, and eligibility has been expanded in under the CARES Act.
But that doesn’t relieve the emotional burden it takes on the registrant.
Shaffer’s client in the personal services industry says he feels his whole life depends on bankruptcy success.
“Some days look more promising than others,” says the client. “It’s a learning process, and every day and every phase brings new challenges. I think we are between struggling and bouncing back.
“WE WILL EASILY SEE A WAVE OF DEFECTS AND BANKRUPTCIES DELAYED IN 2021 AT 22”.
Dr Jodi Jacobson Frey is a professor in the School of Social Work at the University of Maryland, specializing in behavioral health in the workplace. Among her appointments, Frey is co-chair of the American Association of Suicidology Workplace Suicide Prevention and Postvention Committee. Frey says that even without a pandemic, financial distress can be severe as it impacts every aspect of a person’s life, from their relationships and general happiness to their basic needs for food and shelter. Feelings of shame and embarrassment also accompany financial problems.
“Bankruptcy tends to be full of fear of the unknown because most people don’t know someone who has already filed for bankruptcy and they don’t understand the laws,” says Frey. “Fear can be crippling, causing people to live in denial, ignore bills, avoid calls from creditors or fall back on credit cards. “
Frey likens financial distress to a rubber band. You can stretch it, but it will only bounce a certain number of times before it breaks. In this pandemic, with individuals and businesses facing a myriad of stressors, the elastic is stretched too far.
“Financial distress leads to financial desperation, and this leads to poor health and mental health outcomes,” she says, including substance use, depression or assault, and even suicide. And pandemic isolation only makes it harder to tap into the support networks needed to get through a difficult time.
“People feel hopeless, like they don’t have any options,” she says. “Fear keeps us from reaching out until it’s too late.”
Shaffer advises those who are faced with failure not to delay.
“If you know there’s a problem, if you might be fine now but you know business is down, talk to a restructuring professional as soon as possible,” he says. Most lawyers offer a free initial consultation, and talking to a lawyer doesn’t always lead to filing – sometimes there are other options, but they decrease if you wait too long, he says.
Shaffer once helped a customer who was a hard-hit restaurant supplier when the chain he was outfitting closed and canceled plans for new stores.
“He couldn’t wait a year for business to pick up,” he says. “This person’s business was going to close, and he knew it.”
The business was liquidated in an orderly fashion. They maximized the sale of assets and worked with creditors to renegotiate repayment amounts.
“At the end of the day, the individual had no responsibility and even had a bit of equity in the business.”
Shaffer emphasizes that not everyone in financial difficulty is alone.
“These things are happening, and now they are happening everywhere, but there are options. In the end, it doesn’t have to be a total loss.