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By Rachel Feintzeig Of DOW JONES DAILY BANKRUPTCY REVIEW The white board in Loretta Cross's office is covered with proof that the BP oil spill is starting to take its toll on Gulf Coast businesses. The restructuring professional usually uses the space to jot down the names of a few potential clients, such as energy companies that might be veering into dangerous economic waters and need her help to stay afloat. "Six weeks ago, there were three names on it," says Cross, a manager partner with Grant Thornton. "Now I'm having to find space to write on it." Cross, who specializes in the oil and gas sector, has drilling companies, supply boats and rig-staffing companies on her radar as the leak continues to spew oil into the Gulf. But the economic impact of fishing and drilling moratoriums, coupled with the blow from tainted beaches during the summer vacation season, could also topple companies in the tourism, restaurant and boating industries. Experts say a slew of small- and mid-sized businesses could soon seek shelter in bankruptcy court or simply shut their doors without enough cash or customers to make reorganization a reality. "The effect of the oil spill will be to destroy a lot of businesses," said Lynn LoPucki, a law professor at the University of California, Los Angeles, "and that destruction will be contagious." In the wake of disasters, all kinds of businesses often get dragged down. As soon as one directly affected company can't pay its suppliers or its workers, a whole constellation of interconnected players in the local economy could run into trouble. "It's a chain reaction," said R. Patrick Vance, a bankruptcy attorney with Jones Walker in New Orleans. Small businesses are especially susceptible to these financial hardships, since they're often operating on a tight margin with sparse cash reserves and no insurance to fall back on. "These businesses are going to be hurt," said Jack Williams, a professor at Georgia State University College of Law. "Some will be devastated to the extent that they rely on the Gulf as a natural resource." But the bankruptcy filings may not immediately follow the devastation. Experts say it usually takes anywhere from six months to a year before filing statistics begin to register the jolt to the economy. Samuel Gerdano, the executive director of the American Bankruptcy Institute, cited a study on post-hurricane bankruptcy filings that revealed a 30% bump in filings two years after the storm and a 45% rise three years later. And Vance, the New Orleans bankruptcy attorney, can recall firsthand how the financial fallout from Hurricane Katrina played out. "It just takes a while for the ripple to kind of wash all the way through, where people kind of give up and say, 'I have no choice but to shut the doors and file bankruptcy'," Vance said. Attorney B. Andrew Monaghan said he's seen the same phenomenon play out in Gulf Shores, Ala., which has gone from bustling summer getaway to "ghost town" in recent weeks. "It hasn't really hit, the reality of it yet," Monaghan, who's with Harrell, Whetstone & Monaghan LLC, said of the reactions he's observed among his clients and friends in the area. Monaghan said he's been approached by local small businesses that have seen demand for their services drop off or totally evaporate, but no one is quite ready to file a bankruptcy petition. Even players in the real-estate industry, who had already been suffering in the depressed economy, are still in a bit of denial, according to Monaghan. "Everyone's trying to wait and see," he said. "At the moment, I think that people are probably trying to make claims with BP and hold on." The claimants Monaghan refers to are looking to get a piece of the $20 billion fund set up by BP to cover the costs and damages caused by the spill. But while the cash pool is designed to provide companies and individuals with some immediate relief, the announcement of its formation in mid-June has also prompted a flurry of questions and concerns. Williams, the Georgia State professor, cautioned that the fund is likely to be taken advantage of by some undeserving claimants who will serve to "take a dollar out of the pocket of the real needy people." "When you're talking about this kind of devastation and this type of money, it's going to attract a lot of unscrupulous people," said Williams. "There's going to be attempts to misuse and misappropriate the fund." A spokesman for BP declined to comment and referred questions to Kenneth Feinberg, the attorney appointed to administer the fund. A representative for Feinberg didn't return a call seeking comment. Meanwhile, the real victims might be apprehensive about pursuing claims. Ed Schroeder, who heads up the tourism arm for the Pensacola Bay Area Chamber of Commerce in Florida, said less than 15% of the small businesses in his organization affected by the spill had filed claims. "We've got a lot of really small family-owned mom and pops that probably fear that they just don't have everything needed to be able to get a claim, so they're not even opening one," he said. In some cases, struggling businesses might fear that the money will be too little, too late--perhaps rightfully so. "If a claim takes weeks and weeks to get processed, there is certainly a survivability question," Schroeder said. "It's got to happen quickly." Still, when the bankruptcy filings do come, attorneys say it might be best to move slowly. Debtors won't be capable of filing successful reorganization plans until they know exactly how much they're going to be able to recoup from BP, or until they know when their local beach is going to reopen, said Kenneth Rosen, an attorney with Lowenstein Sandler PC. "If you are a business along the Gulf Coast that's been devastated, it sounds to me a little unfair to say that we're going to push you in and out of the Chapter 11 process as fast as we might normally push a debtor through," said Rosen, who noted that bankruptcy judges have the flexibility to extend deadlines or waive certain filing requirements for debtors with unusual circumstances. "It's not simply a financial restructuring. It's not simply closing down and selling assets that you don't need any more. The debtor may have no control over when tourism returns to the beach," he said. "I think the bankruptcy judges are going to very much have to rethink how they treat some of these debtor cases." (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Rachel Feintzeig, Dow Jones Daily Bankruptcy Review; 267-639-6000; rachel.feintzeig@dowjones.com (END) Dow Jones Newswires July 01, 2010 12:03 ET (16:03 GMT)