A Decline In Chapter 11 Filings Allows Attorneys to Utilize Their Skills Elsewhere
Due to its relation to the state of the economy, a bankruptcy lawyer’s practice can be highly cyclical – actually, counter-cyclical. In the last 30 years or so we have seen a number of economic downturns – the bankruptcy boom of the late ‘80’s/early ‘90’s; the dot-com bubble of the late 90’s, and the great recession beginning in the late 2000s. When Covid-19 arrived and much of the economy shut down, most predicted another recession. Bankruptcy practitioners prepared to become very busy.
Despite such predictions, the bankruptcy boom did not happen (yet). While there was a small flurry of prominent bankruptcy filings in a few isolated sectors of the economy, led by retail, the overall numbers of Chapter 11 filings have remained low. The combination of historically low interest rates, federal government stimulus money, and local government real estate moratoria have delayed the need for significant restructuring of debt and the protections of the bankruptcy laws for all but a few isolated industries. As a result, the bread and butter of most business bankruptcy lawyers – Chapter 11 filings - are few and far between. According to the American Bankruptcy Institute, only 264 commercial Chapter 11 cases were filed nationwide in August, 2021, down 50% from the same month in 2020.
Despite, and because of, the currently booming economy, bankruptcy lawyers are utilizing the litigation and transactional skills that they have developed as part of their Chapter 11 practice outside of the bankruptcy arena. For instance, some bankruptcy lawyers are successful litigators, who can put their litigation skills to work in court proceedings other than the bankruptcy court. When Chapter 11 filings are down, these lawyers are handling business litigation in both federal and state courts.
On the transactional side, bankruptcy lawyers are valuable resources due to their extensive knowledge of the Uniform Commercial Code, and in particular Article 9. Perfection of a security interest under Article 9 is the standard against which personal property security interests in bankruptcy are tested. Understanding the methods and ramifications of an Article 9 foreclosure is essential to evaluating the rights of secured parties, for example, when comparing a potential out of court workout to a threatened bankruptcy. In addition, bankruptcy practitioners often have developed a keen understanding of suretyship law, due to the importance of non-debtor guaranties in the world of insolvency. As a result, many bankruptcy lawyers double as commercial finance lawyers, handling business loan transactions involving the granting of security interests in personal property, and the accompanying guaranties of such debt. Due to bankruptcy lawyers’ practical experience involving struggling businesses, they can use that perspective at the front end of a transaction to craft more protective language, potentially saving the client from future bankruptcy pain it never anticipated.
Until the real estate moratoria end, interest rates go up, or money gets tight, bankruptcy lawyers are bringing their expertise to their clients in different ways. And many clients are tapping into this sometimes overlooked resource. The economy is currently stable which is great news for many businesses. However, as we know, things change quickly. Clients can benefit from being proactive so that in the event of a downturn, they will be better protected.