Economists have been predicting a wave of bankruptcies since the beginning of the pandemic. Surprisingly, the number of consumer bankruptcies just hit a 14-year low: 34,440 in November, the lowest since January of 2006.
This seems to contradict the fact that millions of people are facing unemployment, unexpected medical bills, struggling businesses, and other financial consequences of COVID-19. According to an article by The Wall Street Journal, the low rate of personal bankruptcies is likely resulting from the eviction and foreclosure moratoriums still in effect in various states throughout the country, as well as residual aid from the CARES Act and other relief programs. Foreclosure is one of the biggest reasons why people file bankruptcy, which means we may expect to see a spike in consumer bankruptcies if the moratoriums lift without additional financial aid from the government.
Another explanation for the low rate of consumer bankruptcies is the uncertainty of the future. No one can be sure of whether more aid may come from the government, when more jobs may become available, or how much time the economy will need to fully recover. Bankruptcy is a big decision, and many people may be wary of making such a decision without knowing what next month—let alone next year—may have in store.
An Increase in Business Bankruptcies
While consumer bankruptcies hit a 14-year low, business bankruptcies have steadily increased, with Chapter 11 filings up 40% from this time last year. This increase makes sense because of the sudden losses of revenue resulting from forced shutdowns across the nation, for which the Paycheck Protection Program hardly compensated.
The increase might also have to do with the fact that Chapter 11 is now much friendlier to small businesses than it was before the passage of the Small Business Reorganization Act of 2019. Beginning in February of 2020, small businesses have had access to a section called Subchapter V that allows for a simpler and more cost-effective form of reorganization, similar to what consumers use under Chapter 13. Additionally, the CARES Act temporarily increased the debt threshold for Subchapter V from $2,725,625 to $7,500,000. This increase will last until March of 2021.
Is Bankruptcy Your Next Move?
Bankruptcy is a powerful form of financial relief, but it can be difficult to determine whether it’s right for you and, if so, when to file. At Buchalter & Pelphrey Attorneys At Law, we work closely with our clients to determine how bankruptcy may improve their situations. If we feel bankruptcy is the most effective way to achieve freedom from debt, we can help you select the most appropriate chapter and navigate the process from start to finish. If we believe you might benefit more from a bankruptcy alternative, we can explore each of your options, answering any questions you have along the way.