About two weeks ago–about 6-7 days into the COVID-19 shut down–I had a work call with a debtor’s bankruptcy attorney.
After we briefly talked business, we talked about how everything else was going. I asked him if he was swamped with anxious debtor phone calls. He said he wasn’t, which surprised me. During that first week, the news was full of businesses closing and mass layoffs.
In fact, he wasn’t even at his office. As we talked, I could hear that he was at the store, buying groceries and navigating an entirely separate conversation with the check-out clerk.
As he was loading the groceries in his car, he clarified: “It’ll be busy, like 20 hour a day work-days. But not yet. Right now, nobody knows what tomorrow looks like. Right now, people are worried about survival, not about their bills. Starting in April, maybe early May, that’s when it’ll start. It’ll be when they finally realize that Bankruptcy is their only option.”
I’ve thought about that call in all my conversations with bankers and small business owners navigating financial relief under the CARES Act (the Small Business Stimulus loans, the Paycheck Protection Program, or the expansion of the EIDLP programs), under their business interruption insurance, or calling their lenders for help.
This sense that a bankruptcy filing isn’t the first choice, but, for so many people, it’s inevitable.
Today’s Wall Street Journal has an article, Bankruptcy Lawyers Gear Up for Surge in Filings Due to Coronavirus Fallout, which previews this potential explosion in bankruptcy filings. “The spike hasn’t caused an immediate jump in corporate bankruptcies, which require financing and—absent an emergency—usually take weeks or months to prepare.”
The reasoning, there, is that a really complex corporate bankruptcy isn’t something that you can rush into. It takes internal planning, a massive review of financial records, and, in many cases, advance negotiation with essential creditors. In a different time, that process can take 6 months. The coronavirus hit us like a tidal wave, taking us from healthy to destroyed (financially) in a week.
But, what about the average consumer? Well, as a result of quick action by the Tennessee court administrators and Tennessee Supreme Court, most in-person court proceedings are suspended through the end of April. As a result, even the most aggressive landlord can’t evict a tenant, because there’s no court to sign the order. Plus, there’s a good legal reason to avoid conducting a foreclosure in Tennessee during this time. There’s a good chance these suspensions are extended more as this situation develops.
Many debtors file Bankruptcy directly in response to a financial distress, often to stop a pending credit rights action (a foreclosure, a court date, a deadline in a lawsuit). Without these prompts, will there be an urgency for a debtor to call a bankruptcy attorney? Maybe not.
Are bankruptcy attorneys even meeting with potential clients during all this? Most of the ones I’ve talked to aren’t.
Also, as a matter of timing, what’s the benefit of filing early? Right now, many people are out of work and don’t have regular income. A filing now would draw a line in the sand of their debts at a time when their finances are most uncertain. Candidly, their debts will most likely extend far beyond that line. Why not wait and see if you’re forced to go deeper in debt before you file?
As strange as it sounds, it’s likely that bankruptcy filings will not spike until the economy starts to recover, when businesses start to reopen and people begin to go back to work. That’ll be when people can stop worrying about survival and start worrying about digging themselves out a financial hole.
So, yes, Tennessee bankruptcy lawyers are going to be busy and, if 2008 is any indication, Nashville bankruptcy lawyers may end up being some of the busiest in the country.
I think that happens in June.