Business Bankruptcies On The Rise Despite Drop In Overall Number Of Bankruptcies

Overall, 2020 was not a good year. We had a global pandemic, which triggered an economic crisis. As a result, you might expect to see a huge jump in the number of bankruptcies filed. But data from the courts tells a different story. Statistics released by the Administrative Office of the U.S. Courts show a 29.7% drop in the number of bankruptcies filed in 2020 compared to 2019. 

It appears that the economic stimulus packages passed by the federal government may have helped many people avoid financial ruin. Or, it could be that the worst is yet to come. The press release accompanying the court data notes that following the 2007 economic crisis, bankruptcies didn’t peak until 2010. 

Trying to predict the future is impossible, but looking at hard data can give us an idea of what is already happening and suggest trends. The data shows that while personal bankruptcies dropped significantly, business bankruptcies actually increased. Chapter 11 reorganizations rose 18.7%, from 7,020 in 2019 to 8,333 in 2020. Of those, 7,786 involved business reorganizations.

The Washington Post did a deep dive on the increase in business bankruptcies to see what types of businesses were hit hardest:

Data on a subset of businesses ― those registered as corporations ― shows that some sectors are faring much worse than others, with restaurants, retailers, entertainment companies, real estate firms and oil and gas ventures filing for protection in far greater numbers than in previous years, according to New Generation Research.

Bankruptcies filed by entertainment companies in 2020 nearly quadrupled, and filings nearly tripled for oil and gas companies, doubled for computer and software companies and were up 50 percent or more for restaurant owners, real estate companies and retailers, compared with 2019, data from the research firm shows. 

Other sectors have so far not fared as badly as one might expect, as only 77 hotel or gaming companies filed for protection in 2020, down from 92 in 2019 ― a year when the tourism industry thrived.

Wisconsin is home to businesses in all of these industries (yes, even oil and gas if you consider frac sand mining to be part of that industry). Looking at Wisconsin-specific data from the U.S. Courts, you can see the number of personal and business bankruptcies filed in each Wisconsin county during 2020. As usual, Milwaukee and the surrounding counties have the most of both types. 

We know the data on what is happening to others is of little comfort when you are struggling to keep your head above water. No matter what is happening to others, we are here for you when you need bankruptcy counsel. The Hanson & Payne team handles both personal and business bankruptcies for people and organizations in the Milwaukee area.

3 Benefits Of Subchapter V Bankruptcies

In February 2020, a new bankruptcy law went into effect. The Small Business Restructuring Act of 2019 (SBRA), which is also being referred to as Subchapter V, created a bankruptcy process designed specifically for small businesses. 

Under the law, debtors can pay off creditors over a three to five-year period through a payment plan based on projected disposable income. At Hanson & Payne, we work with both debtors and creditors. Our role in a Subchapter V case is to lobby the trustee on behalf of our client so the trustee will recommend a plan that benefits our client. To do so, we work with our client to put together what we would consider an ideal plan, then gather all of the evidence that supports that plan. 

The Repayment Plan 

The third thing that sets Subchapter V apart is its repayment plan. This is not something you typically see in other business bankruptcies, but it is common in a Chapter 13 personal bankruptcy. 

The big issue in Subchapter V cases is what counts as disposable income since that is the money that is earmarked for repaying creditors. The pandemic has made this a challenging task since cash flow has been so irregular during the past year. The Hanson & Payne team helps debtors and their creditors determine a fair way to calculate disposable income. 

Milwaukee Bankruptcy Lawyers Small Business Owners Can Rely On

At Hanson & Payne, we are eager to help small business clients who feel the Subchapter V process may be just what they need to survive and thrive post-pandemic. Whether you know Subchapter V is what you want to do, or you are open to other options, our business-savvy team is ready to advise you and guide you along whatever path you choose. If you are looking for legal counsel in this challenging time, we would be honored to take your call. Contact us today to schedule an initial consultation.

Businesses a bankruptcy option that is like a hybrid of a traditional Chapter 11 business bankruptcy and a Chapter 13 personal bankruptcy. This has been a real boon to small businesses here in Wisconsin and across the country during the economic downturn caused by the pandemic. 

There are three big things that set Subchapter V apart:

  • It provides shorter deadlines for completing the bankruptcy process
  • It provides for a private trustee who will work with the small business debtor and its creditors to facilitate the development of a consensual plan of reorganization, and 
  • Creditors are repaid through a court-supervised repayment plan. 

Shorter Deadlines 

Under Subchapter V, businesses have only a 90-day window to submit a reorganization plan to the court. Compare this to the 120-day deadline in Chapter 11 cases, which is often extended for periods up to 18 months. The difference is remarkable, and businesses are getting through the Subchapter V process remarkably fast. 

The law also requires the court to convene a status conference within 60 days of the filing date. 14 days before this conference, the debtor must file a report with the court detailing its progress towards reorganization. These deadlines really speed up the resolution by keeping the court and all of the parties interested in the case hopping. 

The speed cases get resolved is important because bankruptcy filers must pay ongoing administrative fees and expenses. As cases drag on, these amounts can really add up and become a burden on an already cash-strapped business. 

The Role Of The Trustee 

As soon as a Subchapter V case is filed, the United States trustee (UST) will appoint a Subchapter V trustee to the case. The trustee is tasked with facilitating the development of a consensual plan of reorganization. This is a very hands-on job. 

Blise Becomes Milwaukee’s Newest Bankruptcy Judge

Milwaukee attorney Rachel M. Blise has been appointed to fill the vacancy created when former Bankruptcy Judge Brett H. Ludwig, was appointed to the United States District Court for the Eastern District of Wisconsin last September. Blise, who took the oath office on March 17, will serve a 14-year term. 

According to the press release  announcing Blise’s appointment:

Ms. Blise earned her bachelor’s degree from Carthage College in Kenosha, Wisconsin, and her law degree, summa cum laude, from Marquette University Law School, where she served as an articles editor for the Marquette Law Review. After graduating from law school in 2010, she clerked for Fifth Circuit Judge Carolyn Dineen King in Houston, Texas. She returned to Milwaukee in 2011 and joined the business litigation and bankruptcy practice groups at Foley & Lardner LLP. She is currently Senior Counsel at the firm.

 

Ms. Blise serves on the Board of Directors for the Eastern District of Wisconsin Bar Association and co-chairs the Civil Committee. She is also a member of the Board of Directors for the Milwaukee Bar Association and a past chair of the Bankruptcy Section. She is a member of the Seventh Circuit Bar Association and a past associate member of the Thomas E. Fairchild Inn of Courts. Ms. Blise has worked on a pro bono basis for the Wisconsin Women’s Business Initiative Corporation and the Milwaukee Habitat for Humanity. In addition, she has volunteered at the Milwaukee Justice Center

The Hanson & Payne team congratulates Judge Blise on her appointment, and looks forward to appearing in her courtroom. 

We will notify any client whose bankruptcy is impacted by Judge Blise’s appointment. We are optimistic her appointment will cause no difficulties, and in fact may speed the resolution of cases in the Eastern District because it means the court is no longer short of a judge. Fortunately there was not a significant slowdown when Judge Ludwig was promoted because the pandemic was already impacting cases, and September to March is not terribly long to go without a single judge. 

Although the bankruptcy court is a federal court, vacancies on it are typically shorter than other federal court vacancies. Federal district court judges must be appointed by the President and confirmed by the Senate, a process that can take years if there is partisan disagreement. U.S. bankruptcy court vacancies are typically filled within six months because the judges are not appointed by the President. Bankruptcy court judges are instead selected by a majority vote of the circuit court judges in the jurisdiction in which they sit. It says a lot about Judge Blise that she was selected by the judges in our field to serve in her new position. 

If you are a Milwaukee area resident or business who is considering filing for bankruptcy, the Hanson & Payne team is ready to help. Our experienced attorneys handle both personal and commercial bankruptcies. We also do quite a bit of work for creditors and local banks. Please contact our office today to schedule an initial consultation.