Bankruptcy's 'Deep Freeze' May Be Struggling Cos.' Best Hope
Law360 (May 21, 2020, 4:23PM EDT) -- Two years after the financial crisis began near the end the end of 2007, there were 104,383 business bankruptcy filings. The vast majority of these cases ended in liquidation. Today, the words used to describe the widely anticipated number of filings include a "tsunami," a "cascade," or even a "biblical wave of bankruptcies." Perhaps the number will be equal to or greater than the 163,681 business bankruptcy filings in 1986-1987. This might not be a bad thing.
It took the economy two years for the recession caused by the financial crisis to end, but when it did, we were left with more or less the same economy: Some companies disappeared and business ownership changed in the normal musical chairs fashion, but the world looked more or less the same. Jobs may have been lost, but other jobs were created including, for better or worse, a new gig economy. In short, people continued to go to work.
Today, the number and scope of businesses affected is far greater and broader than any prior recessionary event, except for the Great Depression. The U.S. unemployment rate of 14.7%-23.6%, depending on whose calculations are used, is at the same level it was during the Depression. No one really knows whether there will be a new normal or what that new normal will look like. The crisis we face today is not simply financial; it is existential. Temporarily or permanently, the COVID-19 pandemic will change where and how we work and how we eat, shop and play.
Since the middle of March, the Federal Reserve has pumped $6 trillion in loans and credit support into the economy. By doing this, the Fed has kept many businesses, such as the airlines, alive and out of bankruptcy. But not all businesses or business sectors are the recipients of the government's largess and many businesses will go into bankruptcy.
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Law360 by Joseph Moldovan. Published May 21, 2020.