Millions of Americans are out of work due to the COVID-19 pandemic. The unemployment rate fluctuated and improved as the months moved towards autumn, but 8% of Americans are still out of work (as of October 2020).
You might think that filings for Chapter 7 bankruptcy might drastically increase during the pandemic. While we have seen more cases than usual in our law office, the nationwide picture isn’t at or near record levels. Yet.
In today’s blog, Groce & DeArmon explains some recent statistics for bankruptcies during the COVID-19 pandemic.
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Bankruptcies Are Actually Down (For Now)
The American Bankruptcy Institute (ABI) tracks bankruptcy statistics in the United States. Bankruptcies for 2020 are actually down compared to 2019, and some weeks are down quite a bit. For example, there were a total of 7,993 bankruptcies filed during the week of October 5 to 11, 2020.
This number was down 40.6 percent from the same week in 2019. All but two weeks from the end of March 2020 to mid-October 2020 were down double digits in terms of the number of filings from last year. The average weekly decline was about 40 percent.
Percentage of Chapter 7 Bankruptcies Rose
One thing that did change was the percentage of total bankruptcies filed that were Chapter 7 bankruptcies. From 2015 to 2019, about 37 percent of filings were Chapter 13 filings where people had enough disposable income to restructure their debts and make payments for five years.
The ABI notes that in April of 2020, slightly less than one-fourth of the month’s filings were Chapter 7. Experts believe this is because out-of-work Americans had no disposable income to repay debts.
Statistics from October 5 to 11 bear out this trend. Of the 7,993 total bankruptcies filed, 2,266 were Chapter 13. That’s 28.3 percent of all bankruptcies filed. From August 10 to 16, there were 2,001 Chapter 13 bankruptcies out of 8,464 total. That’s right at 25 percent.
When Are Bankruptcies Going to Increase?
The ABI notes these trends could continue through the end of the year. The organization says that bankruptcies during the Great Recession peaked in 2010, a full two years after the housing market collapse. (Unemployment was also greater during that time.)
We may not see a sharp increase in Chapter 7 bankruptcies until the beginning of 2021. The increase is probably coming. It’s just a matter of when. Lower incomes, more debts, higher medical costs due to COVID-19, and defaulting loans create a series of unfortunate events that lead to more bankruptcies for hardworking Americans.
But Chapter 7 bankruptcy gives you a fresh start.
Several factors may change or delay a sharp rise in filings.
Retailers are hiring for the winter holidays, but income from those jobs may not offset the debt that piled up during the pandemic. Yes, creditors may have been more forgiving during the toughest part of the pandemic, but Americans still owe money to credit card companies, banks, health care providers, and mortgage lenders.
Credit cards are just now maxing out. Once the pandemic began, people became more frugal. They depended on benefits and charities. But those entities are stretched thin. As more and more people put more money on credit cards, that resource may soon run dry.
Government assistance may happen, but it may be too late for some. Politics in Washington has delayed stimulus checks, which may not come until late January 2021.
Another factor to stave off bankruptcy comes from income tax returns. Hardworking Americans who have dependents may see large income tax returns in mid-February. But again, this money may not be enough to offset the massive debt load that people took on during the pandemic. Rather than pay debts with their returns, Americans may choose to file Chapter 7 bankruptcy before they file their taxes. That way, they’ll have money to spend on items they need rather than to pay debts.
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Bankruptcy Attorneys at Groce & DeArmon, P.C.
The bankruptcy attorneys at Groce & DeArmon, P.C., understand that these are tough times. Are you considering filing for Chapter 7 bankruptcy? We can help you through this difficult decision. Contact Groce & DeArmon or call toll-free 1-800-640-3706 in Missouri or (417) 862-3706 to schedule a free consultation.