Slowing bankruptcy filings could signal a flurry to come

A slowing in bankruptcy filings could be a sign of the beginning of a rush to follow

As bankruptcy filings drop across all industries during the final quarter of the year 2021. Experts expect to see a huge increase in activity in the coming year according to the latest report from Polsinelli and TrBK on distress indexes. The number of bankruptcy filings in the report are at its lowest level since the time of reporting – almost 11 years ago.

All in all, general Chapter 11 filings fell to their lowest levels ever since second-quarter this year which was an unprecedented third quarter of declining filings. Deposits in real estate have stabilized but healthcare remains way behind the average. Read more here about bankruptcy fillings here:

“I don’t recommend making claims unless they are a defense claim, an action that blocks the creditor from taking any enforcement actions or an offense which is the execution in accordance with creditors or debtors,” said Jeremy Johnson, Polsinelli shareholder, bankruptcy and restructuring lawyer, and co-author in the document. “With the rapid reduction of deposits we anticipate that the number of deposits to increase. This includes poorly-drafted agreements that fail to address the immediate issues and lenders working with borrowers in spite of restrictions, a hazy post-COVID scenario, and possibly an discontinuation of support from the government.

The bankruptcy filings of banks are declining.

New bankruptcy filings for commercial companies have decreased in 2021. But experts believe that the favorable circumstances that allowed companies to stay out of Chapter 11 for the time being will not last long due to the negative consequences of shady deals and operational issues come to front.

Commercial bankruptcy filings spiked in 2020 before easing off in 2021 as the year began. Despite predictions that new cases will pick up towards the end of the year, as due to the COVID-19 epidemic, filings have slowed to records as relief efforts have helped stave off, at a minimum extreme financial problems. The number of brand cases filed in the new Chapter 7 and Chapter 11 bankruptcy cases filed during the twelve months that ended 30 June 2021, was lower than the previous year in the estimation of the Administrative Office of the U.S. Courts. Commercial filings decreased 17.7 percent to 18,511 when compared to the year prior.

The amount of the bankruptcy filings dipped. The largest bankruptcy for a company in the year 2020 was Hertz Global Holdings Inc with $25.43 billion of assets when it filed for bankruptcy, while the one in 2021 was the offshore drilling company Seadrill Ltd, with $7.29 billion of assets, as per an analysis by Cornerstone Research.

The most obvious reason for the lower amount of business filings is due to the continuous strength of capital markets, which has allowed for easy access to funding. However, in the end businesses will typically seek to address their financial issues in a way that isn’t the bankruptcy courtroom, just to avoid press attention and public scrutiny that is associated with an official Chapter 11 filing. It will always be the case even when there is an outbreak.

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