Chapter 11 Filings are increasing at an alarming rate.
There were 747 new commercial Chapter 11 registrations in September, an increase of 78% over the previous year. This emerges from Epiq's insolvency filing statistics for September 2020 from the AACER business. In the first three quarters of 2020, 5,529 Chapter 11 commercial submissions were submitted, an increase of 33% over the same period last year.
"After a slower August, we're seeing an increase in Chapter 11 filings in September both month and year over year," said Deirdre O'Connor, Epiq's chief executive officer, in prepared remarks. “These commercial records are primarily small businesses with no access to capital or incentives. Unfortunately, in the current economic environment, these bankruptcies will continue to increase. "
According to O’Connor, opportunistic investors provide capital injections to large companies. But they too could have problems. "However, the most heavily indebted distressed companies could succumb to formal restructuring due to a lack of credit support and the general decline in the sector," he says.
The surge in bankruptcy filings is yet another indication that the economy is still suffering. The retail sector is particularly hard hit. Retailers to file for bankruptcy this summer include Pier 1, J. Crew, Neiman Marcus, Stage Stores, JCPenney, Tuesday Morning, GNC, Lucky Brand, RTW Retailwinds, Brooks Brothers, and Ascena (including Ann Taylor, LOFT, Lane Bryant ). Justice, Catherines), Le Tote (including Lord & Taylor), Tailored Brands (including Men & # 39; s Wearhouse, Jos.A. Bank, Moores Clothing, K&G) and Stein Mart.
As commercial bankruptcies, retail and even office landlords could face a loss of rental income. This, in turn, could affect their ability to pay their loans or force them to sell.
"Most retail tenants such as restaurants and fitness centers cannot recover," said Mark Foster, attorney at Snell & Wilmer in California. "I don't think the landlords or their lenders will be able to extend anything and do anything. All of a sudden there is a series of evictions and a series of semi-empty buildings that the owners have to sell. And they have to go with it sell at a discount. "
A passing bright spot is the number of non-commercial bankruptcies. Chapter 13 non-commercial filings were down 43% in 2020, with 118,306 filings. This is a decrease from 206,933 filings from the same period in 2019. Chapter 7 Non-commercial filings fell 23% to 27,027 new filings in September 2020, a decrease from 34,957 filings in the same period in 2019.
Chris Kruse, senior vice president of Epiq AACER, says this is the result of regulatory programs that "add liquidity to the market and delay new bankruptcy filings."