Bankruptcies Pile Up As COVID-19 Pandemic Squeezes Cash

By Vince Sullivan
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.

Sign up for our Bankruptcy newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!

Law360 (May 29, 2020, 9:30 PM EDT) -- In the 2½ months since COVID-19 created a national emergency in the United States, dozens of companies have tilted into bankruptcy in the retail, travel and energy sectors, and a former bankruptcy judge predicts the turmoil will spread further through the economy in the coming months.

The already-struggling retail sector has been hit particularly hard by the pandemic as customer foot traffic dissolved almost overnight in response to government-imposed business restrictions.

Retired U.S. Bankruptcy Judge Melanie Cyganowski, now at Otterbourg PC, told Law360 that retail businesses had been suffering from the "Amazon effect" for years and that the coronavirus was the final challenge that many couldn't overcome.

"What we're seeing is companies that were preparing for bankruptcy or reorganization anyway … when COVID came and the lack of foot traffic truly pushed them into bankruptcy, maybe sooner than they were expecting," Cyganowski said.

Cyganowski said that as restrictions are slowly eased nationwide, businesses won't return to normal immediately and more retail operations may start running low on the cash they've relied on to ride out the crisis.

"Even in areas where places are reopening, most places are being pretty cautious," she said. "I don't think people are going to voluntarily put themselves into harm's way for a leisure activity."

Cyganowski said the travel and retail industries will continue to struggle, probably through the end of 2020, as society continues returning to normal.

In the next few months, though, she anticipates a glut of personal bankruptcies as employees whose jobs were put on hold during the peak of the pandemic may not have positions to return to. While those workers have benefited from government aid, increased unemployment payments, and forbearance on mortgages and loan payments, those programs won't last indefinitely.

"At some point, the pressure is going to reach a breaking point," Cyganowski said, referring to individuals who have lost their jobs. "You're going to be looking at Chapter 7s. I think that's the overlooked thing, given the multiplicity of the large companies filing for bankruptcy."

Companies that have laid off or furloughed significant numbers of employees may find that they are able to continue operations once they reopen with a much smaller workforce, which would further drive personal insolvency cases, she said.

Hospitals may be the next domino to fall after money-making elective procedures came to a standstill for several months as medical facilities geared up for an anticipated tsunami of COVID-19 cases.

"During this three-month process, you not only had no income coming in but had the continued expense of running a hospital," Cyganowski said. Facilities in hard-hit areas of the country like New York City also had the added costs of acquiring personal protective equipment and ventilators and paying higher staffing costs, she said.

Government aid packages did not include significant funding for hospitals at first, but subsequent rounds of stimulus funds were directed to rural hospitals.

Cash will be king in the coming months, she said, as companies with weak liquidity positions will fall if they aren't able to ride out the crisis.

"I just see companies continuing to struggle through the end of this year," Cyganowski said. "It will depend on how strong in liquidity they are and whether or not they can maintain a workforce."

Here is a look a bankruptcy cases in three key sectors. 


Century-old retail icon J.C. Penney filed for bankruptcy protection May 15 after a yearslong effort to restructure its business. It plans to close at least 240 of its more than 850 stores in the Chapter 11 case, and is pursuing a dual track process where it will either try to reorganize around a smaller store footprint or sell the business as a going concern.

Neiman Marcus, another department store giant, retreated into bankruptcy May 7 with a plan to slash about $4 billion of its debt. The company blamed the unprecedented disruption wrought by the COVID-19 outbreak for derailing its out-of-court efforts to streamline its operations and improve its performance.

Clothing seller J.Crew was the first significant retailer to succumb to the altered conditions when it filed for Chapter 11 on May 4, with a plan-in-hand to swap about $1.65 billion of its debt for new equity in the company.

Other smaller players have fallen into insolvency court since the start of the pandemic, including Stage Stores and Tuesday Morning.

Home decor chain Pier 1 Imports filed for bankruptcy before the pandemic paralyzed the American economy and originally planned to reduce its store footprint and emerge as a leaner operation with a healthier balance sheet. But the impact of COVID-19 forced the company to pivot to an all-out liquidation last week.

CraftWorks Parent, the owner of restaurant chains including Logan's Roadhouse, sought bankruptcy protection in early March and later received court permission to effectively pause its case to ride out the pandemic. The company was later able to close on a private sale of its assets to a secured lender to stave off liquidation.

Art Van Furniture's plan to liquidate some of its retail locations and sell about 45 others as a going concern was scuttled when going-out-of-business sales were halted by stay-at-home orders. It later converted its case to Chapter 7 liquidation as hopes for restarting sales faded.


Regional Alaskan airline Ravn Air Group hit bankruptcy in early April when its passenger base vanished on short notice. Hopes for some kind of government aid went unfulfilled, and the company now intends to liquidate its assets through Chapter 11 sales.

Colombian airline Avianca entered Chapter 11 with about $5 billion of debt after an 80% drop in business in early May. Avianca plans to reduce its service footprint.

Another South American carrier, Chile's LATAM Airline, filed with $7 billion of debt, saying its normal operations had been cut by more than 95%.

In Europe, Norwegian Air moved the four affiliates that employ thousands of pilots and cabin crew members into insolvency courts in Sweden and Denmark on April 20.

Rental car stalwart Hertz Global shifted into bankruptcy last week with about $24 billion of debt, most of it related to vehicle fleet financing arrangements, after its business dried up almost overnight.

Advantage Rent A Car followed suit this week when its abysmal revenue picture pushed it into court with about $350 million of debt.


A pricing battle among oil-producing nations, an oversupply of oil and natural gas and a decreased demand for hydrocarbons during the pandemic combined to send offshore oilfield services provider Hornbeck Offshore Services into bankruptcy in May. The company came with a prepackaged plan to restructure its debt with the help of secured lenders.

Ultra Petroleum Corp. also hit Chapter 11 in May due to the virus after it was unable to make a $13 million debt payment.

--Editing by Jill Coffey.

For a reprint of this article, please contact

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Ask a question!