COVID-19 pushes business bankruptcies higher in an already tough year
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J.C. Penney, Hertz, Gold’s Gym, oil driller Chisholm — all declared bankruptcy during the pandemic. 24 Hour Fitness filed for bankruptcy earlier this week. The fact of the matter is you can’t go far without practically tripping over a bankruptcy these days, and many economists say it’s going to get worse.
Despite the government support and loans, it might just be too late for a lot of companies.
Twenty twenty was expected to be a bad year for bankruptcies before coronavirus. They were up 14% in the first quarter and are now up 20% from this time last year. Jared Ellias is professor of law at the University of California, Hastings College, who focuses on corporate bankruptcy law.
“We are projecting a historic wave of bankruptcies over the next 18 months or so,” Ellias said.
How big of a wave is not totally clear — the pandemic has really messed with economic predictions. S. Abraham Ravid is professor of finance at the Sy Syms School of Business.
“The market does not seem to predict a horrible year,” Ravid said. “It predicts a bad year, but not a horrible year.”
For some sectors, it may well be horrible — retail, travel, oil. For companies that were in trouble before the pandemic, it may be too late. For others, it depends.
“The question is going to be whether the government can continue to prop up businesses and people at a level that’s meaningful long enough for the economy to get back on its feet,” said Michael Sweet, a bankruptcy attorney at Fox Rothschild.
The initial government relief packages were based on the assumption that businesses just needed a short bridge while things shut down for a month or two, said Carl Tannenbaum, chief economist at Northern Trust.
“It now appears that the span of that bridge is going to need to be a lot longer, and the pillars and support of that bridge are going to need to be stronger,” Tannenbaum said.
In other words, he said we should not underestimate the economic impact of the pandemic.
COVID-19 Economy FAQs
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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