Collector - March 2021 - 35

CREDITORS

of the Great Recession due to proactive
industry and government approaches.
Here are some highlights from the panel's
discussion, which have been edited for
clarity and brevity.
Lahn: We are talking about the future of
loan defaults. Let's start by discussing what
is different in this economic downturn.
Zdravkovic: The differences between this
situation and prior downturns arise from
the following drivers:
*	 COVID-19 happened quickly and
led to a sharp economic downturn.
*	 While we had significant market volatility
at the beginning of this downturn, the
markets are now doing well.
*	 The federal government pumped
money into the economy, offering a $2
trillion stimulus package.
*	 Because of the pandemic, the
hardest hit areas were entertainment,
restaurant, hospitality, leisure and the
retail sector.
Lahn: Have we seen an increase in
bankruptcies? Where are the trends heading?
Cavallaro: While total bankruptcy filings
in 2020 decreased by almost 40% compared
to 2019, as of November 2020, Chapter 11
filings increased by 46% from 2019. We also
expect an increase for small businesses.
Creditors need to respond within 60 days
of the filing to review the process. It could
create a significant burden if bankruptcy
volumes go up.
One other point I want to bring up is that
the default rates on home mortgages have gone
up; I think this was the largest single quarter
increase the Mortgage Bankers Association has
tracked, yet foreclosure volumes were down
97%. We are talking about compressing the
future timeline for what is going to happen in
the courts when the floodgates open.
Lahn: Mike, are you seeing other
enforcement actions such as assignment
for benefit of creditor? How aggressive are
lenders or creditors right now?

COLLECTOR 03.21

Cavallaro: This is a tricky question because
we have both federal laws and individual
state requirements, with each state doing
things a little differently. While that has
required large, national lenders to paint
with a broad brush and not be so aggressive,
we do expect to see assignments for benefit
of creditors.
We saw the first wave of defaults impact
consumers living paycheck to paycheck,
but we are also concerned about six to nine
months from now when we see impacts from
the larger commercial entities.
Do we need to start liquidating? Most
large financial institutions are afraid to be
the first mover. I have some clients with
major customers that were in default for
three or four months before COVID-19,
but these financial institutions are afraid to
take action, even if they are legally allowed
to do so, because they don't want the
reputational damage. Everyone is waiting,
but at a certain point they must go collect
their debts.
Lahn: Is threat of foreclosure still a viable
option in the negotiation of a defaulted loan?
Cavallaro: I think it is. This pause will
not last forever; it may only last for a few
months. The banking system wouldn't

Panelists
Connie Lahn, partner at
Barnes & Thornburg,
practices in the areas of
bankruptcy and
insolvency.
Mike Cavallaro, partner
at Barnes & Thornburg,
practices in the area of
default, including the
consumer regulatory
side and commercial work outs.
Violeta Zdravkovic, CPA
and managing director
at O'Keefe, a consultant
in litigation for fraud,
forensic accounting
and bankruptcy.

survive if it weren't able to collect on your
debts. Everything just takes longer than it
did before March.
Lahn: How are lenders documenting
changes of payment terms? Any suggestions?

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Collector - March 2021

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