Local bankruptcy filings drop 35%

May 4, 2021

Sacramento Business Journal

Downey Brand partner and financial restructuring and commercial attorney Jamie Dreher was interviewed for this Sacramento Business Journal article related to the decrease in local bankruptcy filings over the last year. Jamie helps clarify as to why this was the case and explains why struggling businesses and non-businesses were more likely to permanently close than file for bankruptcy.

Read the full article below, or subscribers can view the article on the Sacramento Business Journal’s website.

By Renata Geraldo, Data Reporter, Sacramento Business Journal

New local bankruptcy filings dropped 35.2%, despite high rates of business closures and unemployment, in the 12-month period ending March 31.

Despite high rates of business closures and unemployment in a pandemic year, local bankruptcy filings dropped 35.2% in the 12-month period ending March 31.

Both non-business and business filings declined in the U.S. Bankruptcy Court for the Eastern District of California, which includes the four-county Sacramento area. According to the Administrative Office of the U.S. Courts, new filings fell in all federal courts. But the decline in the Eastern District of California was slightly less than the national decrease of 38.1%.

Sacramento, El Dorado, Placer and Yolo counties registered a total of 2,867 new bankruptcy filings during the 12-month period. Out of those, 3.94% were business filings and 96.06% were non-business. Consumer filings normally make up the most bankruptcy filings, said Jamie Dreher, a partner at Sacramento-based law firm Downey Brand LLP, but businesses and non-businesses were largely able to stay out of bankruptcy because of relief funds, eviction moratoriums and delays in state court dockets.

The Paycheck Protection Program and small business grants helped some local businesses stay afloat, Dreher said.

And those that still struggled were more likely to permanently close than file for bankruptcy. Bankruptcy cases take time, effort and money, and if a business is not earning revenue, has no customers and is under a government-ordered shutdown, “there’s not much it can do for them,” Dreher said.

Along with government relief programs, delays in state courts contributed to the drop in new bankruptcy filings, said Bret Rossi, senior counsel of Sacramento-based law firm Kronick Moskovitz Tiedemann & Girard. When courts closed because of the pandemic, lawsuits and other court activities were delayed. State court actions such as asset liquidations and evictions often feed into the bankruptcy system.

Along with the state court delays, the federal and state governments set moratoriums on evictions. With fewer evictions, fewer people had to declare bankruptcy to protect their assets or reorganize debt, Rossi said.

“You’re not seeing a lot of pressure to put people into a bankruptcy situation, so they’re not filing,” he said.

Economies are set to reopen this year, including California’s on June 15. While that means more businesses restarting operations and more job availability, bankruptcy filings might also increase soon, Rossi said. “I think we’re starting to see that come to an end.”

Except for the recently announced federal American Rescue Plan, which will provide $1,400 per-person checks to households, many relief programs have ended or now have ending dates. The PPP is set to end this month and the end of the eviction moratorium is set for June.

“We do anticipate that this trend will go away when the government support starts going away and the courts start getting back to normal and you start seeing more and more evictions filed, unlawful detainers filed, foreclosures on mortgages that haven’t been paid if that’s held in advance,” Rossi said. “That’s where we see the pressure coming — when the government support starts waning.”