Georgia business bankruptcies rise, and horizon looks even worse

Don’t look now, but the next economic fallout from the pandemic could be coming soon — scores of local businesses filing for bankruptcy.

A steady increase of bankruptcy cases has already begun in Georgia, but many experts predict a tidal wave this fall. Landlords are losing patience with commercial tenants, and many will soon insist on getting paid. Tenants have used federal rescue loans to pay rent, but the money will soon run out for many borrowers. And, for many companies, business is still a long way from returning to normal.

“The floodgates are going to open,” said Rob Williamson, an Atlanta bankruptcy attorney.

Cases have already started to tick up. Nationwide filings during the first half of this year for Chapter 11 cases, the primary bankruptcy type for businesses, were at their highest level since 2012, according to the American Bankruptcy Institute. They rose 23% the week of July 6 compared with the same week a year earlier.

Chapter 11 filings in U.S. Bankruptcy Court for the Northern District of Georgia rose slightly in the first six months of this year, up 8% from the first six months of 2019.

Georgia state courts have been closed for months because of the coronavirus, but federal bankruptcy courts have remained open, holding trials through virtual channels.

“There have been some glitches here and there but, frankly, it’s been working fine,” said Todd Meyers, a bankruptcy attorney at Kilpatrick Townsend & Stockton.

A variety of industry sectors have seen firms file for bankruptcy this year, though retail and restaurants have been hit harder than most. National chains like JCPenney and Chuck E. Cheese have both filed for Chapter 11. Atlanta-area companies like the Krystal fast-food chain have also hit bankruptcy.

“Retail was already struggling before COVID and it’s only gotten worse,” Meyers said. “Other tenants where you have large gatherings, like movie theaters, their business has come to a stop.”

Healthcare companies have filed for Chapter 11 this year, including Precise Healthcare Solutions in Tucker, as patients postpone elective surgeries. Dental practices like Spotlight Family Dental in Cumming have hit bankruptcy as they have struggled to meet safety requirements that would allow them to reopen.

Travel and tourism-related businesses are hurting, too, as airlines have drastically cut capacity. The rental car provider Hertz filed for bankruptcy in May, and industry experts say that airlines, cruise ship operators and hotels are vulnerable.

Bankruptcy does not typically mean a company is going out of business permanently, and many continue to operate as they try to renegotiate debts. Retailer Neiman Marcus’ store at Lenox Square is open, even after it filed for bankruptcy in May.

“Bankruptcy has such a terrible taboo, but the whole point is to help people get out from underneath debt in an organized way,” said Amy Quackenboss, executive director of the American Bankruptcy Institute, who formerly practiced bankruptcy law in Atlanta.

A new law aimed that makes it cheaper for small businesses to file for bankruptcy will likely result in more cases this year, attorneys said. Previously, a small business had to file the same bankruptcy case as a large corporation.

“Chapter 11 is very expensive,” Quackenboss said. “There is now a much more efficient way for small business to qualify for Chapter 11.”

Real estate concerns will drive many new cases, Williamson said. In the federal Paycheck Protection Program, relief loans will be forgiven if small businesses use the money to pay workers and rent. But those loans are running out.

“Commercial mortgage loans are going to default,” which will impact landlords and banks, Williamson said.

Many small businesses survived for weeks thanks to the $660 billion PPP initiative. About $130 billion of PPP funds remained available at the end of June, and Treasury Secretary Steven Mnuchin has suggested repurposing that money for businesses that need it. Mnuchin has also proposed forgiving all PPP loans under $150,000 without requiring business owners to submit a forgiveness application.

Quackenboss said the pandemic has had a devastating effect across nearly all segments of the economy, and that it wouldn’t be surprising to see a business from any industry file for bankruptcy in the coming months.

“Honestly, I don’t know that there are any industries that are safe,” she said.

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