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Federal Dollars at Work: What is the Exit Strategy?

The Deficit, COVID Pandemic and Bankruptcy Strategies

By: Laura Day DelCotto

In every single chapter 11 bankruptcy case we begin, in the initial pre-filing meetings, we discuss at length the exit strategy. Of course, there are so many people and factors outside our control that the debtor’s exit strategy is assuredly not the same as other parties in the case. We build that into all the planning and contingency planning. All debtors in possession must fully anticipate resistance and creditors seeing things differently. But going in without any exit plan at all is grossly unrealistic. It’s usually referred to as “free-fall” in the bankruptcy world.

The federal tab is growing (or has grown already long ago) to an amount that is insurmountable. What is the exit strategy?   

A Growing Federal Deficit

In the federal fiscal year that ended September 30, 2019, as we obliviously went along our merry way without seeing 2020 coming, the federal government deficit grew to $984 billion. This was a 26% increase over 2018. Remember that Congress has been unable to pass a budget many times, always resorting to a short-term band-aid. Such behavior is never recommended in the private sector, and often not permissible under existing loan covenants. Directors and officers are sued all the time for short-term band-aid activities, yet the American people seem to have no real-time way to hold Congress members’ accountable for failing to pass budgets for their own annual operations.  

Spiraling Since the Pandemic

With the seemingly unlimited COVID/coronavirus-inspired federal grants, forgivable loans and incentive programs, the Congressional Budget Office (CBO) states that the budget deficit was approximately $1.9 trillion in the first eight months of fiscal year 2020 (October 2019- May 2020), and growing. Recent figures top the deficit at around $3 trillion by the end of the fiscal year in September 2020. Federal funds flow to states and to local agencies in a maze.

Where did all the money go? What is the exit strategy? Taxpayers, speak up and demand answers. The local, state and federal government repercussions are going to be off the charts. Don’t forget that chapter 9 bankruptcy was enacted by Congress during the Great Depression so governmental entities could address massive debt in an organized and coordinated manner. Since the fed can’t file and neither can states, the uptick in local government insolvency and non-liquidity is on the horizon.     

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email info@dlgfirm.com or reach us on our contact page.

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