A recent decrease in local bankruptcies likely belies the region’s financial situation, local experts said, especially if the coronavirus pandemic drags on.
Bankruptcy statistics released Thursday by the U.S. District Court in Toledo showed a 4 percent decrease in the number of cases filed in March compared to a year ago.
But local bankruptcy experts say they worry that if the coronavirus pandemic drags on, the number of individual and business bankruptcies will grow slowly and explode later this summer.
“If it was over today, which it won’t be, people might get through this. But if this goes on through, say, June, eventually people are going to not have any money left and not know where to turn,” Toledo bankruptcy attorney Elliot Feit said.
“We could start seeing a lot of people getting sued to pay back what they owe. There’s a moratorium so far on landlord evictions and banks calling loans,” he said. “But I think it’s going to start building slowly, and I think a lot of people are going to get hurt. I don’t know how many.”
Mr. Feit added that, if the pandemic stretches into this fall, “a lot of people are going to start filing [bankruptcy] just so they don’t lose their homes.”
In March there were 399 cases filed, compared to 414 filed in March, 2019. Of those filed, 361 were Chapter 7 individual liquidation cases while 37 were Chapter 13 repayment cases.
Through the first three months of 2020 there have been 962 total cases filed, which is only a 4 percent increase from last year.
And so far this year, there has been just one Chapter 11 business reorganization bankruptcy filing in the Toledo Court, which covers 21 counties in northwest Ohio.
But Kara Bruce, University of Toledo bankruptcy law professor, said she expects Chapter 11 cases to soar fairly soon with their revenues cut off by a state order to shut down all nonessential businesses to public access, an order that was extended to May 1 on Thursday. Businesses such as restaurants may do takeout and delivery but that is not an option for all businesses.
“Everybody is stretched pretty thin, right now, and businesses are used to having a normal amount of money come, and they use that revenue to pay their employees and pay debt. But now many of those businesses aren’t seeing any money coming in,” Ms. Bruce said.
“So it just depends on whether they’re able to find creative ways to keep their businesses alive. Whether they can shut down strategically and survive. How forgiving their lenders will be,” she said.
“If I had to predict, a rise in the business filings will be the ones we will see first. But I also think this crisis has the potential to affect consumer bankruptcy filings for years to come,” Ms. Bruce said.
Nationally the American Bankruptcy Institute will release its March data in the next few days. In February, it said total commercial Chapter 11 filings had decreased 20 percent compared to February, 2019.
A Chapter 11 allows a business to reorganize and seek new financing to stay afloat while holding off creditors, while a Chapter 7 business liquidation happens when a business no longer is viable and its remaining assets are split among secured and unsecured creditors.
Recently the bankruptcy institute’s executive director said her organization also fears that a wave of bankruptcy filings is near.
“While the statistics might not show the immediate effects, we expect filings to increase as a result of the financial impact of the COVID-19 pandemic,” ABI Executive Director Amy Quackenboss said.
Ms. Bruce agreed that the virus crisis has the potential to bankrupt a lot of individuals and businesses.
“If you get coronavirus, that could involve lengthy hospital stays, ambulance rides, really expensive health aftercare. A lot of people are living on credit cards right now just to get through the crunch,” she said.
“But this is what bankruptcy is for — to help people and businesses that are structurally sound to make it through a crisis,” Ms. Bruce said.
First Published April 2, 2020, 9:35 p.m.
