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Reports of decreased business bankruptcy paint an inaccurate picture

On Behalf of | Jan 14, 2022 | Corporate Bankruptcy & Restructuring

Those who take a cursory look at the data may think businesses did pretty well through 2021. Major news outlets like Bloomberg Business report large business bankruptcies, or those involving companies that have $50 million or more in liabilities, dropped almost in half in 2021 compared to previous averages, and Bloomberg Law reports that annual bankruptcy filings fell to the lowest rate seen in nearly four decades.

With these numbers, people may expect businesses to be thriving throughout the country. Unfortunately, as business owners know all too well, the numbers reported do not paint an accurate picture of the current marketplace.

Are these numbers inaccurate? Two factors to consider.

A number of businesses that were already struggling due to the pandemic chose to file for bankruptcy in 2020. In the past, these businesses may have attempted to continue through the new year and file for relief in 2021, but the pandemic likely accelerated the path to bankruptcy. This then likely skewed the numbers for 2021.

Another factor that impacts an accurate gauge of business bankruptcies: stimulus funds. Many businesses were able to survive 2021 due to stimulus money aiding both the business itself and its creditors. Recent federal reports note that at the end of September 2021, $3 trillion in stimulus funds were either spent or committed to future expenses.

Unfortunately, these funds are not indefinite and may no longer be available through 2022.

What does this mean for 2022? Business bankruptcies may surge.

Businesses continue to navigate a new reality carved out by a pandemic that keeps evolving. Although federal stay-at-home orders are less likely, businesses are struggling to find workers to help keep operations moving forward as new variants continue to impact the marketplace. The problem impacts all businesses — everything from clinics that offer medical care struggling to find enough professionals and keep current staff from succumbing to burnout to restaurants that cannot get enough workers to serve their customers to retailers who cannot get stock to fill their shelves. Every sector has felt the impact of this pandemic.

As a result, legal experts expect an increase in business bankruptcy filings in 2022, noting the factors discussed above simply deferred a need to restructure or start fresh for many businesses throughout the country.

How can business leaders prepare? Review the basics and know your options.

Business bankruptcy can offer business leaders a chance to step back from an endeavor that did not succeed as hoped and put their efforts into new, more promising opportunities. If the business still has promise, restructuring options can offer renewed hope. Entrepreneurs are wise to begin discussions about these and other options to help guide their business or start fresh with experienced legal counsel.