US Bankruptcy Filings Slowed Down in August

By Mary Anne R. First Posted: Sep 03, 2020 04:33 AM EDT

Business bankruptcy filings in the United States has significantly decreased in August from previous months.

However, chapter 11 filings were up from last year as the coronavirus pandemic continued to affect the economy.

A total of 525 businesses filed for chapter 11 protection from creditors in August, which fell by 18 percent from 642 businesses in July. But this increased by 17 percent if compared from August last year, according to legal-services firm Epiq Systems Inc.

Epiq noted that the numbers indicate continued distress in retail, energy, entertainment, and travel and leisure.

In the first eight months of this year, bankruptcy filings rose up to 28 percent to about 4,800.

Deirdre O'Connor, managing director for corporate restructuring at Epiq, said large corporations are benefitting from robust capital market activity, which is providing access to capital at an attractive cost.

"However, smaller companies are not experiencing the same market dynamics to access liquidity and will consider seeking protection in a bankruptcy," O'Connor said in a report.

The slowdown in bankruptcy filings in August from July is due in part to companies following other options, including forbearance agreements, said Andrea Hartley, chair of the bankruptcy and reorganization practice group at law firm Akerman LLP in Miami.

The decrease was also caused by lenders and borrowers pursuing out-of-court deals, such as receiverships, the voluntary turnover of assets and sales of collateral by secured creditors after default, according to Hartley.

Hartley said these "may just delay the filing, although businesses are hopeful the international health and economic conditions will improve in the coming months such that a bankruptcy filing will not be necessary."

Companies that are part of bankruptcy filings in August include Men's Wearhouse and Jos. A. Bank parent Tailored Brands Inc., luxury department-store chain Lord & Taylor.

This also includes discount retailer Stein Mart Inc. and London-based offshore drilling contractor Valaris PLC.

Meanwhile, personal bankruptcy filings also continued to decline in August from July and from a year earlier.

August had about 36, 900 personal bankruptcy filings, which is eight percent fown from the previous month.

"We continue to see delays in filings as government and bank programs provide short-term liquidity relief to consumers," said Chris Kruse, senior vice president at Epiq Aacer.

The number of people who filed under chapter 13 decreased by 62 percent to about 9,300 in August from a year earlier.

Chapter 13 filing is a more expensive type of bankruptcy, which requires filers to make monthly payments before their debt is discharged.

Joseph Baldiga, co-chair of the bankruptcy and reorganization group at law firm Mirick, O'Connell, DeMallie & Lougee LLP, said that federal programs and state eviction and foreclosure moratoriums have at least postponed creditors' actions.

However, unemployment rates remain high. Government-funded assistance programs have ended or are reduced and moratoriums start to expire.

"The filings will start to increase in the fourth quarter and really pick up in early 2021," Baldiga said in a report.

Meanwhile, the Los Angeles City Council declared a fiscal emergency on Wednesday, resulting in temporary layoffs of about 15,000 employees.

This is due to the city's struggles with an economic body blow from the pandemic.