Soaring bankruptcy filings in 2007, as counted Tuesday by the federal government, is just the beginning, big-firm bankruptcy lawyers are saying.
"I am highly confident that there will be a continuing increase in distress situations," said Heller Ehrman partner Peter Benvenutti, a former co-chairman of the firm's insolvency practice.
The number of businesses filing for bankruptcy increased by 44 percent in 2007, according to the Administrative Office of the U.S. Courts. Last year, 28,322 businesses filed for bankruptcy, compared with 19,695 in 2006. While many speculate about how bad the economic downturn will be, bankruptcy lawyers say it's practically getting worse by the day.
"What used to really be a trickle -- one every two to three weeks -- is now closer to one a day. And it's a steady drumbeat of filings and a steady drumbeat of phone calls, of problematic situations," said Peter Gilhuly, a bankruptcy partner in Latham & Watkins' Los Angeles office. "I think we'll be in a full insolvency cycle six months from now, and it will continue for some time."
While attorneys expect to see more filings in bankruptcy hot spots New York and Delaware, California is no failure at financial failure. It topped the federal list last year with 3,505 cases, up from 2,098 in 2006.
The Golden State posted 40 percent more than Texas, the state with the second most filings, accounting for nearly one-eighth of bankruptcies filed in 2007.
"What you'll see is smaller companies and real estate companies filing here," said Morrison & Foerster bankruptcy lawyer Larry Engel.
All that work won't just keep bankruptcy attorneys busy, lawyers said. As the economy worsens, failing companies in a widening range of industries will keep several categories of lawyers busy.
Gilhuly and Engel said attorneys with derivatives experience can expect to be pulled into bankruptcy cases. Companies unable to refinance debt due at the end of the year and in 2009 will file for bankruptcy in the coming months, they said.
"We've been preparing for it for two years," Engel said. "We have derivatives people; we've studied all the forms."
Litigators and transactional lawyers will see more work too, said Benvenutti.
"If past cycles have been any indicator, I would expect there to be work for transactional lawyers, involved in the buying and selling of asset components that come out of a bankruptcy, in addition to the litigators," he said.
With banks suffering as well, attorneys who specialize in banking rules are consulting more with bankruptcy lawyers at Latham, Gilhuly added.
What began with real estate bankruptcies, then spread to retailers and now airlines will only grow, the lawyers said.
Cases will be increasingly complex, as big clients battle in court over relationships penned in more borrower-friendly times, Gilhuly said.
"It'll be fast-paced with sophisticated folks and battles over major money."