PHOENIX (3TV / CBS 5) - Bankruptcy attorneys predict a 'tsunami' of bankruptcy filings in the coming months, 3 On Your Side has learned.
It’s no secret that many retailers were struggling before the coronavirus pandemic. Analysts say stay at home orders across the country accelerated the downfall of many stores.
On Monday, J.Crew filed for bankruptcy, and in a statement, the company said it plans to remain in business and reorganize under Chapter 11 protection.
"Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances," said Jan Singer, the chief executive officer of the J.Crew Group. "As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come."
According to the American Bankruptcy Institute, Chapter 11 bankruptcy filings were up 18% in March compared to a year ago. Bankruptcy attorney Bradley Stevens says it’s likely just the beginning.
"I'm expecting a tsunami of bankruptcies over the next several months," Stevens told 3 On Your Side. "I think right now businesses are kind of hunkering down, waiting to see how things shake out and then in two or three months, I think there’s going to be a lot of bankruptcy filings."
Chapter 11 bankruptcies allow businesses to restructure and stay in business. Stevens says a new federal law, the Small Business Reorganization Act, will help streamline what is typically a long and expensive process.
"It's just an incredible, fortuitous circumstance that this new law was passed and went into effect in February before Coronavirus," Stevens said.
While Stevens calls the streamlined bankruptcy tool a "Godsend" for some, he cautioned reorganization is not the right move for every struggling business.
"Business owners are going to have to decide if they have a strong business plan where they can emerge from a bankruptcy successfully," he said. "They need to have a game plan in mind where they have revenues, reduced expenses as best as they can, and projections on what their future business looks like."