The United States government issued trillions in loans to businesses during the coronavirus. But this hasn’t prevented them from failing to make their bills. Now millions of dollars in debt, these same companies are filing for corporate bankruptcies, typically Chapter 11. An estimated $1.22 trillion has been absorbed over the course of just five months. Now, these chains are attempting to go to the bankruptcy courts for help.
There are two types of bankruptcy that companies file under: Chapter 7 and Chapter 11. In Chapter 7, the debts are discharged but the company is completely liquidated to repay some of the debt. In Chapter 11, companies can reorganize their debts, qualify to have some discharged, and make monthly payments on the debt over the course of an indefinite number of years.
However, many of the companies that are now defaulting on their loans had serious problems even before the coronavirus crisis. These companies were put under by the crisis and are now hoping to save themselves in bankruptcy. It’s probable that not all of them will survive.
The Coronavirus is a Catalyst That Will Change Our Economy Forever
Even before the coronavirus, retail companies were posting poor numbers as online marketplaces like Amazon thrived. Now, companies like J.C. Penney aren’t legally allowed to bring customers into their store. What is the result? J.C. Penney is now negotiating in bankruptcy the best way to repay its creditors. Of course, the best way for large retailers to repay their creditors is to dissolve their assets, closing stores, and putting more Americans out of work.
In the first five months of 2020, 88 major companies globally have defaulted on their debt. In all of 2018 and 2019, there were 43 and 49 defaulted companies through the entire year. What’s worse is that the companies that don’t survive the pandemic are unlikely to come back since the majority of these companies were hampered by market forces that existed prior to the pandemic.
Conservative economists like to talk about how wealth trickles down from the top in the form of jobs, corporate expansion, and more opportunities for those in lower economic brackets. However, it’s also true that debt is going to trickle down in the form of downsizing, store closures, liquidation, and more money for those who invest in high-risk debt.
So the coronavirus is going to create a major upheaval that will be felt for years to come as the market adjusts itself to changing demands. The companies that were on their way out before the coronavirus have been driven into the ground by it.
Retailers Taking the Hardest Hit
If you work in entertainment (fine dining, casual dining, live music, or things of that nature), then you’ve seen your revenue stream shrivel to nearly nothing. But retail stores are much larger employers and still rely on foot traffic to put customers in their store. While many retailers are now offering their products online, those salespeople who man the actual stores are all out of work right now and will be for the foreseeable future. These are the major stores that you’ll find in your local area mall. Among them, Victoria’s Secret, Game Stop, Bath and Body Works, and Forever 21.
Retailers across the country are expected to close another 3600 stores after posting a record number of store closures from 2017 to now.
Major Economic Turmoil Will Bring New Opportunities
Most economists predict we’re heading toward a recession the likes of which we haven’t seen since 2009. But where money dries up in one industry, new industries will emerge to meet new demands. This, of course, isn’t much consolation to those who are falling behind on their mortgage payments, car payments, and monthly expenses. These are folks who are jammed up now and need a way out.
One possibility will be to do precisely what your employer has done and file for bankruptcy. With old debt discharged, this economic catastrophe can provide a jumping-off point to enter a new industry with new opportunities and a clean economic slate. The problem for most Americans is that they wait until the situation is no longer manageable to file for bankruptcy. By then, the damage that creditors can do has already been done.
Financial Problems? Talk to a Bankruptcy Attorney
When you discuss your financial situation with a bankruptcy attorney, there is no obligation to file for bankruptcy or sign up. Butcher Law Office, LLC provides free consultations to each prospective client. During this consultation, we will go over your finances, assets, and liabilities, and discuss potential ways to resolve the debt with as little damage to your finances as possible. Call today to schedule your free hour-long consultation and learn more about how we can help.