Chapter 11 Filings in May Are Not Up as Much as Everybody Will Say There Are

Prediction: you will begin to see stories about an explosion of chapter 11 filings in May 2020. Well, that is not much of a prediction because I already have seen two. Chapter 11 filings did not explode in May.

A few weeks ago, I posted about the huge drop in overall bankruptcy filings and what looks like a modest rise in chapter 11 filings. I did not want to venture more because chapter 11 filings are hard to count. Every petition filed by every subsidiary in a corporate group gets counted as a case, and the number of subsidiaries in a corporate group is arbitrary. Thus, one economic unit can generate what looks like many bankruptcy filings.

This seems to be exactly what happened the last week of May when there were 242 chapter 11 petitions, a huge number for one week and more than one-and-a-half times as many as the same week last year. But, the bankruptcy of Le Pain Quotidien accounted for 104 of those 242 filings as it appears most every location was a separate LLC or corporation.

I am not Pollyannaish about the economy or the chapter 11 rate, which is increasing. But, I am in favor of accurate numbers. You can't say for sure what the exact rise is in chapter 11s without doing the hard work of going through the filings and eliminating the affiliates during the periods you want to compare. I'll leave that to someone else. I stand for nothing if it is not the avoidance of hard work. I am a tenured university professor, after all, and at a state university to boot. 

UPDATE (6/3/2020): Right after I posted this, I saw the inimitable and hard-working Ed Flynn from the American Bankruptcy Institute has done this analysis. The last page of the linked file lists the "child" (i.e., subsidiary) filings in each time period.

Comments

[Jim White]

As a business bankruptcy practitioner I’m not surprised. There are a number of companies that have consulted with me, but there’s not much reason, given PPP loans and other measures that have temporarily propped the business up, to file now. Plus, for closure and most state law cases are stayed, again no reason to file now. I expect that I will see an increase in both individual And business bankruptcies come the end of the summer.