"There is going to be a pent-up demand over time. Ultimately that will turn around, but when, nobody knows," says Jerry Markowitz, a founding shareholder at Markowitz Ringel Trusty + Hartog in Miami. "I don't have a clear idea in my head of when that is going to change because for a while now, people have been saying, 'Well, it's going to stop, and the bankruptcies will be like an open faucet.' But that has not happened yet."

While the number of business-related bankruptcy filings across the country was slightly lower in 2020 than in 2019, the District of Delaware saw nearly three times as many filings year over year and was the venue for 8.7 percent of business filings nationally in 2020, compared with just 3.1 percent the year before. That jumped to 9.7 percent at the beginning of 2021.

Filings in the first quarter of this year were still well above where they were in the two previous years, but Potter Anderson partner Katherine Good says Delaware's bankruptcy court does not necessarily face a bigger flood of filings than other popular venues for bankruptcy litigation.

"Some of the pandemic restrictions have started to lift a little bit, and folks are really looking at what economic trends are going to prevail over the summer and in Q3 and Q4 of this year," Good says, referring to the third and fourth quarter of the year. "I think what we'll see over Q3 and Q4 is how the new normal is impacting businesses, and we'll see some businesses likely have to seek out some form of bankruptcy protection and restructuring work if the new normal is not something that they were prepared for."

Zev Schechtman, a partner at Danning Gill, says he recently saw filings start to increase again. But bankruptcy practitioners typically expect to see effects of an economic event about six months after it occurs. The pandemic has also presented a delay that is not currently as predictable, and a spike in filings could occur soon if federal assistance ends and companies that might otherwise have had to file throughout the pandemic end up filing all at once.

"It seems like the uptick in foreclosure-related action and the elimination of foreclosure relief is starting to get folks who probably would've filed for bankruptcy a while back to pick up the phone and look at their bankruptcy options because they're getting notices of default and they're potentially going to lose their properties," Schechtman says.

Markowitz says the degree of increase in bankruptcy filings among businesses will partially depend on lenders. "Lots of lenders are more forgiving and more willing to work things out without bankruptcy," Markowitz says. "Some aren't, but from my experience recently, more are than aren't." 

Scott Olson, a partner at Bryan Cave Leighton Paisner in San Francisco, says commercial real estate companies could see more bankruptcy filings if, once the pandemic has ended, companies continue to have employees work from home rather than in office spaces.

Olson added that those in retail, airlines, oil and gas, and the hospitality industries could also be among those that end up filing for bankruptcy in higher numbers. 

"We do see that companies are increasing their debt loads, and some companies have certainly gotten themselves in a bigger hole to climb out of by overleveraging their companies. We'll see some challenges in the coming years in certain sectors," Olson says. "A tick-up in interest rates will drive more bankruptcies down the road. That could cause companies to face more of a cash crunch than they have previously."

From: Delaware Law Weekly