Decline in Chapter 11 Filings Allows Lawyers to Use Their Skills Elsewhere | Greenberg Glusker LLP

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Because of its relationship to the state of the economy, the practice of a bankruptcy lawyer can be highly cyclical – in fact, countercyclical. Over the past 30 years or so, we have seen a number of economic downturns – the bankruptcy boom of the late 1980s / early 1990s; the dot-com bubble of the late 1990s and the great recession that began in the late 2000s. When Covid-19 arrived and much of the economy shut down, most predicted another recession. Bankruptcy practitioners have prepared themselves to get very busy.

Despite such predictions, the bankruptcy boom has not happened (yet). Although there has been a small flurry of large bankruptcy filings in a few isolated sectors of the economy, led by retail, the total number of Chapter 11 filings has remained low. The combination of historically low interest rates, federal stimulus funds, and local government real estate moratoria has delayed the need for significant debt restructuring and bankruptcy protections for all industries, to with the exception of a few isolated industries. As a result, most corporate bankruptcy attorneys’ bread and butter – Chapter 11 filings – are scarce. According to the American Bankruptcy Institute, only 264 Chapter 11 business cases were filed nationwide in August 2021, down 50% from the same month in 2020.

Despite and because of the currently booming economy, bankruptcy attorneys use the litigation and transaction skills they have developed in their Chapter 11 practice outside of the bankruptcy field. . For example, some bankruptcy lawyers are successful litigators who can put their litigation skills to work for legal proceedings other than bankruptcy court. When Chapter 11 filings are down, these attorneys handle commercial disputes in federal and state courts.

On a transactional level, bankruptcy lawyers are valuable resources because of their in-depth knowledge of the Uniform Commercial Code, and in particular section 9. The perfection of a security interest under section 9 is the standard against which personal property collateral in bankruptcy is tested. Understanding the methods and ramifications of a Section 9 foreclosure is essential in assessing the rights of secured parties, for example, when comparing a potential out-of-court settlement to a threat of bankruptcy. In addition, bankruptcy practitioners have often developed an in-depth understanding of surety law, due to the importance of non-debtor guarantees in the insolvency world. As a result, many bankruptcy lawyers also act as commercial finance lawyers, dealing with business loan transactions involving the granting of collateral on personal property and the accompanying guarantees for such debt. . Due to the practical experience of lawyers specializing in bankruptcy involving distressed firms, they can use this perspective at the start of a transaction to craft more protective language, potentially saving the client from future bankruptcy pain than he had never planned.

Until real estate moratoriums end, interest rates rise, or money tightens, bankruptcy lawyers bring their expertise to their clients in a number of ways. And many customers tap into this sometimes overlooked resource. The economy is currently stable, which is great news for many companies. However, as we know, things change quickly. Customers can benefit from proactivity so that in the event of a downturn, they are better protectedD.


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