Montrose-La Crescenta Area Bankruptcies Slowed Amid 2020 Pandemic.
Bankruptcy filings were down in Los Angeles County last year, but experts expect them to surge in coming years.
The coronavirus pandemic has caused sharp swings in the economy over the past year, thrusting many businesses and families into economic uncertainty and in some cases outright collapse. Even so, the number of national bankruptcies filed in 2020 was the lowest since 1986 and nearly 30 percent lower than in 2019.
But many experts expect bankruptcies to increase in the coming years. The federal court system was closed near the beginning of the pandemic, which delayed filings for months. Moreover, bankruptcies also tend to be "lagging indicators" of economic distress because of the complex legal process involved; the Great Recession began in 2007 but bankruptcies didn't peak until 2010.
"You see these businesses that ultimately go bankrupt were probably in trouble six months or eight months or a year before they file for bankruptcy," said Fred McKinney, director of the People's United Center for Innovation & Entrepreneurship at Quinnipiac University in Connecticut.
Nationally, all types of bankruptcy filings decreased in 2020 except for Chapter 11, which saw an increase of 18.7 percent compared with 2019. Chapter 11 is typically used by businesses that hope to stay in business by renegotiating their debt. Several large iconic companies including J.C. Penney and Neiman Marcus declared Chapter 11 bankruptcy in 2020.
Across California, 51,385 total bankruptcies were filed in 2020 — 26.08 percent fewer than in 2019, when 69,518 were filed.
And in Los Angeles County, 14,180 total bankruptcies were filed in 2020 compared with 19,186 in 2019, according to the U.S. Courts Administrative Office.
Businesses accounted for around 4 percent of all bankruptcies in the U.S. during 2020, but they can have a large effect on the economy as locations are shuttered and employees are laid off.
Businesses tend to be dependent on each other, and there can be an economic ripple effect that takes years to play out, said Neil Peretz, an attorney with more than 15 years of experience litigating bankruptcy cases in the public and private sectors. Peretz represented public interests in large bankruptcy cases as an attorney for the U.S. Department of Justice during the Great Recession.
"Each entity in the economic food chain is trying to hang on a little bit longer," said Peretz, who now runs a company called Proxifile that helps small creditors negotiate the bankruptcy process when larger businesses fail. "Not everything can cease instantly and people are still trying to sort that out."
Business bankruptcies in Los Angeles County
Business bankruptcies in Los Angeles County decreased last year: 857 business bankruptcies were filed in 2020 compared with 882 in 2019.
There were 583 business bankruptcies under Chapter 7, commonly referred to as liquidation bankruptcies, in Los Angeles County during 2020. That's a decrease from 2019, when 651 businesses filed under Chapter 7.
All non-exempt property is sold during a Chapter 7 bankruptcy, which can be used by both businesses and individuals.
Los Angeles County had 241 Chapter 11 bankruptcies filed in 2020 compared with 180 in 2019.
Non-business bankruptcies in Los Angeles County
There were 13,323 non-business bankruptcy filings in 2020 compared with 18,304 in 2019.
Los Angeles County had 11,304 non-business Chapter 7 filings in 2020 and 13,847 in 2019.
Chapter 13 bankruptcy filings, also known as "wage earner's plans," saw a decrease in Los Angeles County in 2020 compared with 2019. There were 1,962 filed in 2020 and 4,346 filed in 2019.
Chapter 13 is typically used by people with a regular income to reorganize and pay off debts over time. It gives an opportunity for people to keep their homes.