Bankruptcy attorneys are the new rock stars in the legal world, an ignominious consequence of the coronavirus pandemic decimating the economy.
Consider this: Openings for bankruptcy attorneys have tripled since January on online job board ZipRecruiter, while postings across all industries have fallen 48%. Meanwhile, big corporate law firms like Dorsey & Whitney and Paul Hastings are adding lawyers to their bankruptcy teams in preparation for a deluge of business restructurings.
“We definitely anticipate a surge of bankruptcies,” says Amy Quackenboss, executive director of the American Bankruptcy Institute. “The big question in the crystal ball is how many, and how soon.”
The current economic chaos has already triggered high-profile bankruptcies by the likes of J. Crew, J.C. Penney, and Neiman Marcus. Overall, commercial Chapter 11 filings in April rose 26% year over year, and May is unlikely to be any better.
The legal industry will have to shift gears to meet the demand. Law firms have been shedding bankruptcy lawyers for nearly a decade, as Chapter 7 and Chapter 11 filings steadily declined because of the strong economy that followed the 2008 financial crisis.
To fill the shortage, Quackenboss says some firms are making do with younger attorneys who have limited experience and attorneys who have experience in other business-related specialties. Lawyers who normally work in mergers and other big financial transactions, which generally slow during a recession, are well positioned to switch to bankruptcy work, she says.
The cyclical nature of bankruptcy work—high during economic downturns, and low during economic booms—is nothing new. But the suddenness of the coronavirus shock makes the current period stand out.
Jay Westbrook, a bankruptcy professor at the University of Texas at Austin School of Law, says that during a sharp recession in Texas in the 1980s, he was hired by a big law firm to give its real estate lawyers a crash course in bankruptcy. Similar refresher bankruptcy courses for lawyers from other fields are “exploding” in number currently, he says.
But that doesn’t mean converts will be instant virtuosos. “You want to be working with someone who’s an expert,” says Angela Littwin, who also teaches bankruptcy at UT–Austin. “You can get in trouble very quickly.”
Big corporate law firm King & Spalding says it has held internal trainings to help more than 430 partners and associates “retool” to handle aspects of bankruptcy work. But it emphasizes that retrained lawyers will be supervised by bankruptcy veterans.
The downturn promises to have a major impact on newly minted lawyers. Graduating third-year law students in the U.S. Generally had jobs lined up before the crisis hit, and Westbrook says he hasn’t heard of University of Texas students losing those jobs. But current second-year law students are likely looking more seriously at specializing in bankruptcy.
“Our [course] enrollments will shoot up substantially over the next couple of years,” says Westbrook.
But the boom—or, depending on your perspective, the bust—won’t last forever. “Students, unfortunately, tend to be relatively shortsighted on this,” says Littwin. “A career is a long time.”
That means many lawyers who are now shifting to bankruptcy work will, in a year or three, switch to other specialties, such as civil litigation and contract law. A few, says Westbrook, will find bankruptcy interesting enough to stick with it.
They’ll need good people skills on top of their legal chops. “The best bankruptcy lawyers have to have compassion and empathy,” says Ike Shulman, cofounder of the National Association of Consumer Bankruptcy Attorneys. “They have to be good listeners and capable guides. You have to find a way to communicate to clients and have them hear.”
Oddly, personal bankruptcies were down almost 50% in April compared with the same month in 2019, according to American Bankruptcy Institute data. Stuart Gold, a veteran bankruptcy lawyer and cofounder of the specialty firm Gold, Lange & Majoros, says this is likely due to federal relief programs that have provided cash to many people in financial trouble.
As relief programs wind down, Gold expects personal bankruptcies to rise dramatically. “We anticipate we’re going to be ratcheting up and hiring in the third and fourth quarters,” Gold says, “because of the deluge of filings.”
An even thornier problem could be filling vacant bankruptcy judgeships, says Quackenboss, the American Bankruptcy Institute chief. Two professors from Harvard and Brigham Young University this month estimated that the U.S. Needs to double the number of sitting bankruptcy judges to cope with the surge. A group of scholars has urged Congress to take action on the issue.
“That’s something people are concerned about, that the courts might be deluged,” says Quackenboss. “But it takes a year [to install a judge]. You don’t just snap your fingers.”
