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Opinion: Year of pandemic takes down bankruptcies

Eyes & Ears

Posted online

We all can count the difficulties of the past 12 months.

One business item not on that list is bankruptcies. 2020 was actually a good year for bankruptcy filings. What I mean is fewer individuals and businesses filed for bankruptcy protection in Missouri and the Springfield court division.

According to a U.S. Bankruptcy Court case filing report for Missouri’s Western District, the number of bankruptcy filings on this half of the state was down by almost a third last year to 5,104 filings.

It was a 28% drop for filings in Springfield’s Southern Division to the 2020 tally of 1,170 bankruptcies.

Statewide, the trend continues. Hop across to Missouri’s Eastern District, and case processing records show 25% fewer filings.

Let’s do the math to find statewide there were 12,174 bankruptcy filings made in 2020. The year prior in Missouri the number was 16,575. That’s a 27% swing. In the year of the pandemic.

But it’s not just a notable change over the past two years.

In Missouri’s Western District, last year represented the lowest bankruptcy tally in any of the past dozen years at least.

On the business side, specifically, the number of Chapter 11 reorganization filings in the court’s Southern Division in Springfield can be counted on one hand – with one digit to spare. Yes, there were four.

There’s only been two other years with single-digit Chapter 11 filings in the last dozen years. That was seven business reorgs filed in 2016 and nine in 2015, according to a report of Missouri Western District annual case records going back to 2008.

So, what gives? In a year of business shut-down orders, staggering unemployment and companies steadily on the brink of closure, you’d think the bankruptcy courts would be blistered by now.

Nope.

National numbers tell the same story. Records show 2020 bankruptcy filings were the lowest in 35 years, according to legal services firm Epiq. That number was 529,068 bankruptcy filings in 2020.

The only segment increasing year-to-year is the commercial Chapter 11 bankruptcy, which was up 29% in 2020, most notably filed by retailer J.C. Penney Co. Inc. and car rental company The Hertz Corp. The recipe for that spike seems to be distressed companies unprepared when revenues were zapped.

But all in all, the bankruptcy trend has come as a surprise.

New Generation Research CEO James Hammond told Forbes last summer, “I’m pretty confident we will see more bankruptcies than in any businessperson’s lifetime.”

Conventional wisdom would have agreed.

But unconventional federal funding came into play.

Underpinning this bankruptcy environment is $5 trillion dispersed by the U.S. government.

“The federal backstop proved a vital lifeline for the stabilization of corporations to protect the U.S. economy,” said Deirdre O’Connor, managing director of corporate restructuring at Epiq, in the news release detailing the 35-year low numbers.

Seems all the federal economic stimulus money has held off bankruptcy filings at a time when we’d expect there to be a rise.

However, a bankruptcy backflow is growing, and the analysts at Epiq expect the bubble to burst later this year.

Bankruptcy courts should be prepared for a surge. But we’ve heard that before.

Springfield Business Journal Editorial Director Eric Olson can be reached at eolson@sbj.net.

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