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Bankruptcy in Times of Lockdown

More bankruptcy filings are expected, as struggling retailers will eventually succumb if quarantines continue

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An overly optimistic financial market, driven by the rising share prices of a few technology companies, has virtually blinded many from the reality of the average American from the middle or lower classes who do have a software engineering degree and has traditionally had to get up and take public transportation to get to work.

Individuals who cannot afford to work from home, today faces a difficult situation with the massive closure of small, medium, and large businesses, the product of a quarantine whose impacts on prevention, in the best of cases, have been debatable.

Once again, closed places and empty streets in the cities of the United States are back. In the center of each city, more places are seen with the sign of “closed”, or “for rent” in the hope that the broke owners will find a risky businessman who dares to start a business in these times.

Since the 2009 crisis, 2020 has been the year when more large companies have filed for bankruptcy. A total of 244 large companies filed for bankruptcy last year, 49 fewer than in 2009. The most affected sectors have been retail, energy, and healthcare.

The closure of shopping malls and shopping areas has led to a large number of real estate agents going bankrupt. (EFE)

In the retail sector, there have been more than 20 bankruptcies of wholesale companies that have been unable to sustain their sales during the quarantine. Macy’s, one of the nation’s largest department stores, has had to close 37 branches across the United States and expects to close more than 120 by 2023.

Healthcare companies are also suffering the impact of lockdowns, with 22 major companies seeking credit protection. Entire hospital systems are on the verge of bankruptcy today, including Quorum Health Corp and Thomas Health System Inc, both of whom failed to afford their high operating costs.

The year ended with 45 major corporate bankruptcies across all sectors from October 1st to the end of 2020, representing the most turbulent last quarter of any year since 2009.

More bankruptcy filings are expected during 2021, as struggling retail businesses, including gyms and movie theaters, will eventually succumb if quarantines continue. Bankruptcies in these sectors last year included businesses such as 24 Hour Fitness Worldwide Inc., Town Sports International Holdings Inc. and VIP Cinema Holdings Inc.

The real estate sector also began to show signs of a major recession, with 22 major real estate companies filing for bankruptcy, the largest number since 2011. The bankruptcy courts witnessed a major blow in November when shopping mall chains CBL & Associates and Pennsylvania Real Estate Investment Trust filed for bankruptcy within hours of each other.

The real estate exodus is expected to spread as homeowner concessions, such as rent reductions, are exhausted, predicts Cynthia Romano, global head of CohnReznick’s restructuring and dispute resolution practice.

Unemployment is also on the rise due to numerous bankruptcies

With the bankruptcies has also come a wave of hundreds of thousands of people unemployed. A total of 1.15 million workers filed for state unemployment benefits during the first week of 2021, according to the Department of Labor.

With the bankruptcy filings comes unemployment which again has experienced a spike during the first weeks of 2021. (EFE)

An additional 284,000 applications were submitted for pandemic unemployment assistance, an emergency federal program for the self-employed, part-time workers, and others not normally eligible for state unemployment benefits. New statewide unemployment claims totaled 965,000.

Economists are forecasting a new wave of unemployment claims this year as the spread of the virus further affected the service industry. The government reported last week that the economy lost 140,000 jobs in December, the first drop in employment since heavy losses last spring, with restaurants, bars, and hotels registering large losses.

The labor market has recovered somewhat since the initial wave of the coronavirus in March, but of the 22 million jobs that disappeared, nearly 10 million are still lost. If lockdowns are extended, more jobs will be lost permanently as more businesses go under. .

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