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The COVID-19 bankruptcy wave has begun

In New Albany, Ohio, a music school offering piano, guitar, and violin lessons raised nearly $ 1 million in credit և $ 35,000 in credit card debt.

One of the great restaurants in Providence, Rhode Island, received more than $ 450,000 in small business federal funds to pay its employees, but it still had to close its doors.

A nonprofit visitor who controls Kit Carson’s home and museum in Taos, New Mexico, welcomes information about a well-known frontier guard, but lists only $ 17,000 in assets, even after each knife-wielding knife, buffalo apron and flint tightening musket.

Nearly a year after coronavirus outages began to affect much of the US economy, more businesses are filing for bankruptcy as Chapter 11 applications have grown by almost 20% over the previous year.

Data on the subset of businesses registered as corporations show that some sectors are experiencing much worse than others. Restaurants, retailers, entertainment companies, real estate companies and oil and gas companies are applying for protection in much larger numbers than in previous years. , according to New Generation Research.

In 2020, bankruptcy claims by entertainment companies nearly quadrupled, and cases for oil and gas companies nearly tripled, for computer and software companies, for restaurant owners, for real estate companies, for retailers, by 50% or more. compared to 2019 data. Exhibition of a research company. In 2019, there were 5,236 chapters 11 applications, but last year 6,917, which is at least 30% more than in any of the previous four years.

Economists generally forecast strong economic growth this year. But bankruptcy data show that despite $ 3.7 trillion in federal stimulus spending to fight the recession due to the epidemic, with an additional $ 1.9 trillion proposed by President Biden, businesses in some industries have become particularly vulnerable and will take years to recover. : Others will not recover at all.

The other segments were not as successful as expected, as only 77 hotel or gaming companies applied for protection in 2020, instead of 92 in 2019, a year when the tourism industry was booming.

As bankruptcy cases send back other signals of a catastrophic economic situation, experts say the worst is yet to come. Bankruptcy caused by the financial crisis of 2007 did not peak only in 2010.

“Bankruptcy does not hurt the economy,” said Ed Flynn, an adviser to the American Bankruptcy Institute. “The damage was already done when it was declared bankrupt. “Higher bankruptcy is more a symptom of economic loss than a cause.”

Michigan-based BarFly Ventures operated three small restaurant chains: HopCat, Stella’s Lounge և Grand Rapids Brewing, և had more than a dozen restaurants across Michigan և to its peak in Florida. Although BarFly received a $ 6.6 million salary protection plan from the Small Business Administration, the company reportedly had to lay off employees and close some places permanently. It filed for bankruptcy in June.

“In recent years, BarFly has faced a number of challenges, including growing industry competition for craft beer,” said Mark Sellers, founder. “Nevertheless, we faced those challenges; in practice, business was healthy; until the recent global epidemic, we were driven by an unforeseen economic crisis; a 100% drop in income in almost three months.”

According to BarFly, bankruptcy owed more than $ 1.7 million to the food supplier. Sellers said he hopes the move “will allow us to emerge as a financially stronger company.” In October, BarFly announced that it was acquiring two investment companies.

Restaurants were one of the worst-hit areas during the epidemic, with experts saying the worst was yet to come.

“The restaurants I know are having a hard time. And it’s just a question of when they are going to file a lawsuit, “said Rozendo Gonzalez, a Los Angeles bankruptcy lawyer.

Gonzalez, who in some cases serves as a court-appointed bankruptcy trustee and submits other companies to their own applications, said the restaurant’s customers they spoke to were closed or dependent on the thread. “Some will just leave their location and not bother submitting documents,” he said. Others may file a claim for Chapter 7, which means that all their assets are liquidated: they are not reopened.

“I think there will be an increase in all types of heads. “I just do not know when that will happen,” he said.

Knotel, a real estate company that helps companies fix flexible office space, raised hundreds of millions of dollars and competed with WeWork.

But as working from home became the norm during the epidemic, the need for office space dissipated, and the company filed for bankruptcy last month. “The epidemic created a unique challenge for the operating environment,” said Amotel Sarva, co-founder of Knotel. Knotel acquires Newmark Group real estate services.

As the cost of retail and office space plummeted during the epidemic, it undermined development plans, which means property values ​​are lower than homeowners owe. Jim Gene Hammond, executive director of New Generation Research, said high-indebted real estate companies would be at risk.

“Even a return to normal may not be enough to save them,” Hammond said.

Despite the increase in Chapter 11 business cases, there is good news. Because this category of bankruptcy provides protection to creditors for a limited time, it allows them to reorganize and sometimes stay in business. According to court records, some, including a day care center in the Boston suburbs and a specialist manufacturer outside of Detroit, are being bought or relocated.

Many companies with subsidiaries are among the paper companies, which may make some industries worse off than they are.

Other types of bankruptcy applications, for individuals և businesses that plan to liquidate (և not reorganize), both have been reduced by about 30% in 2020 compared to 2019. With levels despite the economic pain caused by the coronavirus. Early 2021 data show that slightly more bankruptcies have occurred so far than last year.

Experts say the cuts could signal that federal, local promotion efforts have at least delayed hitting the very bottom of many businesses.

“I think that the decline of individual bankruptcies will to some extent alleviate the government’s interventions. Incentives, rent moratorium և blocking function, and courts are limited, ”Hammon said.

The hundreds of bankruptcies that have already taken place are clearly the result of an epidemic of almost a year of pressure on the economy. Many of them will not recover.

Over the summer, chain retailers became the biggest names in Chapter 11 lawsuits, including J. Crew, Neiman Marcus, JC Penney, Brooks Brothers և Lord & Taylor. In June-July, on average, more than two corporate bankruptcies were filed daily, according to the rating agency S&P.

“It is unknown at this time what he will do after leaving the post,” said Chris Hudgins of S&P. “It’s hard to say: “We are at a point where I hope the vaccines are right around the corner, so it may be that companies are hoping that things will get better or better,” he said.

However, the plight of retailers has begun to fall on some of their suppliers. On February 15, Country Fresh, which supplied fresh fruit appetizers, salads, parties, soups, and other markets, presented Chapter 11. Based in Houston, the company listed debts of hundreds of thousands of dollars for packaging, logistics, shipping and marketing contractors.

“The supply chain and business disruptions of the epidemic have had a profound effect on Country Fresh և our customers over the past year,” said Bill Andersen, CEO and CEO of Country Fresh. He said the company և its assets will be sold.


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