No. Surprisingly, bankruptcies are decreasing – even amidst the economic turmoil caused by the coronavirus (COVID-19) pandemic. Researchers at Harvard and beyond are searching for the reasons behind this drop, and some expect a bankruptcy tidal wave is just around the corner.
A Bad Year for Big Businesses
Although personal bankruptcies dropped by 28% compared to previous years, Chapter 11 business bankruptcies increased by 35%, and the rate for corporations with more than $50 million assets rose by 194%. Major companies like J.C. Penney, J. Crew, Guitar Center, and Pier 1 filed for bankruptcy, but everyday consumers did not. Overall, bankruptcies declined by about 1%.
Unexpected Trends
Statistics from 2020 defy modern economic patterns. The unemployment rate has gone up, but the number of bankruptcy filings has gone down. Even though many small businesses have closed their doors for good, small business bankruptcies are down, too.
Using historical numbers, researchers expected 200,000 extra claims from consumers filing for bankruptcy. Instead, consumers filed 81,000 fewer claims in just one financial quarter. Given a longer period (January through August 2020), consumers filed 139,000 fewer claims than expected.
Reasons for this unexpected trend may include federal aid, such as the $1.2 trillion stimulus package from the CARES Act. Additionally, mortgage forbearance and the nationwide moratorium on evictions may have kept Chapter 13 filings at bay.
Unfortunately, government assistance is beginning to expire.
What to Expect When Aid Runs Out
Contrary to popular beliefs, bankruptcy is rarely a sign of irresponsible spending – especially in this uncertain economic climate. As federal aid expires, more and more people may come forward and file for bankruptcy. Researchers remind consumers not to be afraid of filing and encourage people to “think of bankruptcy as another piece of the social safety net.”
Everyone deserves debt forgiveness and another chance at financial well-being, particularly after the difficulties of the coronavirus pandemic. Big businesses are quick to take advantage of opportunities for reorganization, and you should not hesitate to do so, as well.
Get Ahead of Your Finances
Even if you are not in dire straits quite yet, you should speak to a bankruptcy attorney about your options before your financial situation gets worse. If you are depending on federal aid packages that keep stalling in Congress or hanging on by the thread of eviction and foreclosure protection, our team at the Law Office of Seni Popat can help you prepare for the future.
We offer calm, stress-free counsel from beginning to end, Attorney Seni Popat handles every case personally, and we are always available for your questions and concerns.
Call us at (718) 340-3385 or contact us online to start preparing for your financial future today.