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Bankruptcy in a Post COVID-19 Era

Wed 18th Mar 2020, Blog

Dear Colleagues,
 
With the economy in turmoil due to the Coronavirus (COVID-19) pandemic, all of our businesses and practices may be impacted by bankruptcy issues.  The economic fallout from the COVID-19 pandemic will likely create a flood of bankruptcies and restructurings as individuals and entities attempt to cope with the resulting financial loss.  There will also be unprecedented legislation addressing the crisis that will require quick interpretation and action.
 
As bankruptcy litigation practitioners, we at Bienert l Katzman PC suggest a few things you may want to have in mind if your business, client, or case is confronted with non-payment, insolvency, or bankruptcy issues.
 
Bankruptcy may allow individuals and businesses an opportunity to reorganize, or in some instances fully discharge, their debts.  This includes, among other things, the ability to:
 
  • reaffirm or reject continuing supply contracts, equipment leases, licenses in intellectual property;
  • address force majeure provisions in contracts;
  • renegotiate real estate lease contracts that may otherwise require long-term commitments or significant rent increases;
  • shed underperforming capital by selling real property free and clear of liens;
  • offer a viable plan of reorganization based on a company’s projected income and future financial forecast; or
  • discharge certain unsecured debt.
 
On the other hand, because it can be such a powerful tool for an honest debtor, bankruptcy can sometimes be abused by those who wish to seek refuge in it for improper purposes, such as to avoid paying a legitimate debt they can afford or to gain a litigation advantage.  A litigant may use the bankruptcy automatic injunction provisions to delay or derail a pending litigation by removing it into bankruptcy court, attempting to prospectively litigate in bankruptcy court.  Detailed knowledge of bankruptcy and related laws and processes, including how to address on an expedited basis as needed, allows businesses and individuals to protect themselves from such tactics.
 
The Inevitable Economic Impact COVID-19
 
As the local, national, and international responses to COVID-19 continue to rapidly evolve, they are having far reaching, long lasting, economic implications for every US citizen and business.  Experts forecast a likely COVID-19 induced recession, where the US economy could shrink by as much as 6% in the next two quarters, putting significant strain on all economic sectors and impacting pending litigation throughout the country. 
 
The fallout from this crisis may last months, if not years.  While these are unprecedented times, by closest analogy, the last recession resulted in a dramatic increase of 65,000 bankruptcy filings in 2008 to a peak of over 142,000 filings in 2010 in the Central District of California alone.  This sustained increase extended well into 2012, affecting not only those directly filing, but altering creditors’ rights to receive payments based on the type of debt involved and the creditor’s status in bankruptcy. 
 
We Can Help
 
The financial markets are volatile, and our world feels uncertain.  During these unprecedented times, everyone at Bienert l Katzman PC would like to express our deepest concern and support for the health and safety of each of you during the COVID-19 pandemic.
 
We are here to help in our areas of expertise.  Our experienced lawyers can aid in protecting your clients’ rights and navigating the bankruptcy process and potential new legislation in these difficult times.  Our unique backgrounds include the former United States Trustee for five federal judicial districts, federal prosecutors, federal public defenders, and former judicial clerks for bankruptcy judges across the Central District of California. 
 
New legislation affecting the restructuring process will require quick interpretation and action.  At Bienert | Katzman PC, our former US Trustee was responsible for the last major change to the bankruptcy laws, the Justice Department’s implementation of Bankruptcy Abuse Prevention And Consumer Protection Act, and tasked to speak nationally regarding the Act’s implementation. 
 
Our knowledge, experience, and expertise provide you with the most effective and efficient solution for any bankruptcy situation.  If you have any questions or concerns, please give us a call to better understand your situation and how we can help.