The First Wave of Company Bankruptcies Due to COVID-19 Officially Begins

Since the beginning of the COVID-19 pandemic, our firm has been closely monitoring the legal implications of the virus and corresponding economic shutdown. One of the potential impacts we were initially concerned about is now starting to come to fruition: a surge in previously healthy companies filing for bankruptcy.

According to data compiled by Epiq System Inc., there were 722 new commercial Chapter 11 bankruptcy filings in May, up 48% compared to the same month last year and up 29% since April 2020. This makes May the month with the highest amount of bankruptcy filings since March 2018 and pushes us closer to the record number of filings during the last recession.

Unfortunately, the worst may not be over. A recent Wall Street Journal article suggests that there is no reason for the pace of corporate bankruptcies to slow down in the coming months, especially as government relief programs taper off.

There is, however, some good news for businesses filing for bankruptcy.

Congress Provides New Relief for Business Bankruptcies 

Effective this spring, a new Section V of the Chapter 11 business bankruptcy law went into effect. The purpose of these changes was to make Chapter 11 more affordable for small businesses by reducing many of the costs involved with the process and streamlining the procedures so that a plan is filed and confirmed within a few months of filing the case.

By streamlining the process, the companies attorneys’ fees and administrative costs are lowered and debtor companies are the only ones who can propose a plan. In some cases, the plan can even allow for the discharge of debt the day that the plan is confirmed.

Originally, the new procedure was only going to cover companies that had $2.75 million in revenues. Congress then recognized that the need may be greater in 2020 because of the pandemic and increased the limit to $7.5 million in revenues. However, this increase will only apply to cases for one year, after which the limit will automatically revert back to $2.75 million in revenues.

Contact Us to Learn More

If your business faces the possibility of filing for Chapter 11 bankruptcy as a result of COVID-19, please do not hesitate to contact our experienced team at Busch Mills. Our two leading bankruptcy attorneys, Clive Morgan and Howard Slomka have the experience and knowledge to successfully represent you throughout the process.



About Clive Morgan

Clive Morgan has practiced bankruptcy law for 38 years representing both creditors and debtors in business and consumer bankruptcies. He has practiced bankruptcy law in all three federal districts in Florida as well as in the Middle District of North Carolina. In recent years he has worked on protecting creditor rights in all phases of the bankruptcy process. Finally, Mr. Morgan has extensive bankruptcy litigation experience has represented parties in adversary proceedings in Chapter 7, 11 and 13 cases.


About Howard Slmoka

Howard Slomka has represented thousands of parties as both debtors and creditors in the complex world of federal bankruptcy. Mr. Slomka practices before the bankruptcy courts in both Georgia and Florida and has taught on topics related to discharges, adversary practice and U.S. Supreme Court recent precedents. He has handled several successful Chapter 11 reorganizations for entities ranging from large hotels and retailers to small businesses and even individual filings. A long-standing Board Member of the Bankruptcy Section of the Atlanta Bar Association, Howie is ready to represent debtors, creditors and other interested parties throughout the bankruptcy process.