Trumbull Area Bankruptcies In Year Of Coronavirus: See Data

TRUMBULL, CT — The coronavirus pandemic has caused sharp swings in the economy over the past year, thrusting many businesses and families into economic uncertainty and in some cases outright collapse. Even so, the number of national bankruptcies filed in 2020 was the lowest since 1986 and nearly 30 percent lower than in 2019.

But many experts expect bankruptcies to increase in the coming years. The federal court system was closed near the beginning of the pandemic, which delayed filings for months. Moreover, bankruptcies also tend to be “lagging indicators” of economic distress because of the complex legal process involved; the Great Recession began in 2007 but bankruptcies didn’t peak until 2010.

“You see these businesses that ultimately go bankrupt were probably in trouble six months or eight months or a year before they file for bankruptcy,” said Fred McKinney, director of the People’s United Center for Innovation & Entrepreneurship at Quinnipiac University in Connecticut.

Nationally, all types of bankruptcy filings decreased in 2020 except for Chapter 11, which saw an increase of 18.7 percent compared with 2019. Chapter 11 is typically used by businesses that hope to stay in business by renegotiating their debt. Several large iconic companies including J.C. Penney and Neiman Marcus declared Chapter 11 bankruptcy in 2020.

Across Connecticut, 4,316 total bankruptcies were filed in 2020 — 30.09 percent fewer than in 2019, when 6,174 were filed.

And in Fairfield County, 954 total bankruptcies were filed in 2020 compared with 1,337 in 2019, according to the U.S. Courts Administrative Office.

Businesses accounted for around 4 percent of all bankruptcies in the U.S. during 2020, but they can have a large effect on the economy as locations are shuttered and employees are laid off.

Businesses tend to be dependent on each other, and there can be an economic ripple effect that takes years to play out, said Neil Peretz, an attorney with more than 15 years of experience litigating bankruptcy cases in the public and private sectors. Peretz represented public interests in large bankruptcy cases as an attorney for the U.S. Department of Justice during the Great Recession.

“Each entity in the economic food chain is trying to hang on a little bit longer,” said Peretz, who now runs a company called Proxifile that helps small creditors negotiate the bankruptcy process when larger businesses fail. “Not everything can cease instantly and people are still trying to sort that out.”

Business bankruptcies in Fairfield County

Business bankruptcies in Fairfield County saw an increase last year: 144 business bankruptcies were filed in 2020 compared with 75 in 2019.

There were 30 business bankruptcies under Chapter 7, commonly referred to as liquidation bankruptcies, in Fairfield County during 2020. That’s a decrease from 2019, when 31 businesses filed under Chapter 7.

All non-exempt property is sold during a Chapter 7 bankruptcy, which can be used by both businesses and individuals.

Fairfield County had 112 Chapter 11 bankruptcies filed in 2020 compared with 43 in 2019.

Non-business bankruptcies in Fairfield County

There were 810 non-business bankruptcy filings in 2020 compared with 1,262 in 2019.

Fairfield County had 685 non-business Chapter 7 filings in 2020 and 930 in 2019.

Chapter 13 bankruptcy filings, also known as “wage earner’s plans," saw a decrease in Fairfield County in 2020 compared with 2019. There were 123 filed in 2020 and 328 filed in 2019.

Chapter 13 is typically used by people with a regular income to reorganize and pay off debts over time. It gives an opportunity for people to keep their homes.

Uncharted business territory as country exits pandemic

Consumer behavior has changed greatly during the pandemic, but what remains to be seen is what changes are temporary and which ones will become permanent. That will have a large effect on businesses going forward.

People going to restaurants and sporting events will likely return as the pandemic wanes, McKinney said.

“I believe that consumers will go back to restaurants, it’s not just the food that people consume when they go to a restaurant, it’s the experience,” he said.

Even a small portion of consumers sticking to pandemic behaviors in the long-term could spell trouble for some businesses, Peretz said. Some people may not feel comfortable going to a crowded theater for a while after the pandemic subsides, or they have become accustomed to watching movies at home.

“If I shave off even 10 percent of demand, the businesses all become over-levered,” Peretz said.

A greater portion of office employees working remotely will likely be a trend that continues into the future. Even a small portion of workers staying remote can have a big effect on the commercial real estate industry, McKinney said.

“Even if it’s just 10 percent, that has an effect on not just commercial real estate, but the demand for transportation and the types of transportation,” he said.

Some families that normally would own two cars may find that they are able to live with just one going forward, he said.

Ordinary investors are often indirectly the creditors to a large corporation that is going bankrupt, Peretz said. A large portion of commercial real estate investment is through ordinary retirement accounts.

Another outstanding question is what will happen when trillions of dollars of federal economic stimulus ends. Federal stimulus including the Paycheck Protection Program helped give businesses capital to maintain employment and cover fixed costs like rent and utilities, McKinney said. The program was a life raft for many small businesses who couldn’t turn to the private sector for loans

Eviction moratoriums across the country have kept renters in their residences, but a lot of back-rent is owed.

“I feel we’ve kicked the can down the road for individuals,” Peretz said.

Bankruptcy system favors the big players

The U.S. Bankruptcy system is one of the best in the world when it comes to maximizing value of troubled companies, Peretz said, but it favors large creditors who have legal resources to fight for a slice of the pie.

“The smaller claimants and businesses are really left out of our legal system right now,” Peretz said.

Bankruptcy cases are among the most complex in the U.S. legal system, and bankruptcy attorneys can charge a premium for their services. A small business owner who is owed $30,000 by a bankrupt company will often balk when they are told legal services are $500 an hour for an unknown number of hours.

Peretz’s company Proxifile charges a capped upfront fee to file a claim and a commission on the size of a recovery from a bankrupt company.