24 Feb Bankruptcy Lawyers Must Love Recessions, Right?
A terrible recession ought to be a great time for bankruptcy lawyers. With so many people and businesses in financial trouble, bankruptcy lawyers certainly have a lot of demand for their services.
Bankruptcy lawyers are told their business is “counter-cyclical” — meaning that we are at our busiest when the economy is down. But interestingly, that’s not entirely true.
For example, consumer bankruptcy filings from 1996 to 2005 averaged at least a million per year and peaked at over two million in 2005, with the avalanche of filings prior to the imposition of the 2005 amendments. Filings in 2006-2008 have totaled less than a million but are moving back to that threshold rapidly as the public has become aware that most bankruptcy options are still available to them. In reality, consumers go broke in both up and down economies.
Business bankruptcy filings tend to be more attuned to the business cycle. For example, business filings declined by about 50% from 1991 to 2000 and declined further over the next few years. Although there is some reason to believe the “business” case description was under-reported — because picking “consumer” or “business” on a petition often has no impact on how it is handled — that’s still a steep drop-off in cases overall. And of course that trend is being dramatically reversed during this recession — with a 61% increase in just the first three-quarters of 2008.
So we (bankruptcy lawyers) are in hog heaven now, aren’t we?
Not really. I can really only speak for consumer lawyers like myself. We’re certainly a lot busier. But our clients are in far worse shape than when the economy was thriving. Working for people with good jobs but too much debt is a lot easier than it is if they have no job at all.
First of course, because it’s harder to pay a lawyer if you can’t pay rent. And sometimes it makes more sense to file a bankruptcy to solve your debt problems when you know you’ve already hit rock-bottom and started to improve. That might not be right now. But more importantly, as with most things in life your choices are fewer without a decent income.
Retired Judge Tom Waldron once said that consumer bankruptcy lawyers have one of the hardest jobs in the law because we have to make things happen with no money. Sometimes it’s a very tough trick to pull off. Sometimes there are no rabbits left in the hat. And when the magic fails, our clients might lose the car, their home, their business, their case, or all of those together.
I suspect these feelings are shared across the spectrum from consumer practitioners all the way to the mega-case Chapter 11 practitioners swamped with failing businesses like Lehman Brothers, Circuit City, and (just possibly) General Motors. After all, the heavily-indebted businesses today have the same problem as consumers — their income is falling off and they’ve pledged everything they own as collateral for loans they can’t pay now. So unless existing or new lenders can be found to help see these companies through a reorganization, many corporate bankruptcies are burials rather than resurrections.
Obviously the bankruptcy lawyer does not suffer like the client losing a home, or the owners and employees watching a business fail. But lawyers worth their salt bleed with every loss. And ultimately, every bankruptcy lawyer is haunted by the cases — the home, the business, the opportunity — that could have been saved if only the economy had delivered just a little more. You remember forever looking in the hat only to find the rabbit died.
So is business good for bankruptcy lawyers? Sure. Would we all prefer things were better out there for everyone? You betcha.
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