COVID-19

Did COVID-19 Cause More Bankruptcies? Groce & DeArmon, P.C. Answers

June 9, 2021 By Groce & DeArmon

Many individuals remember when the housing market fell, resulting in financial hardships for many businesses and ordinary people during the Great Recession. Bankruptcy filings for private and commercial purposes grew substantially, and bankruptcies and repossessions followed suit.

When COVID-19 resulted in an international quarantine, the business writing sector initially reported the projected numbers for bankruptcy filings would exceed that of The Great Recession.

What is unique about the financial results of the COVID-19 pandemic is that the inverse has occurred. In today’s blog from Groce & DeArmon, P.C., we will explore the reasons behind why COVID-19 hasn’t led to more bankruptcy filings.

Has Anyone Filed for Bankruptcy?

Absolutely, just fewer than originally anticipated.

According to the Harvard Business School article COVID Was Supposed to Increase Bankruptcies. Instead, They’ve Gone Down, personal (consumer) bankruptcies dropped 28 percent year-over-year from 2020 to 2021.

Chapter 11 business bankruptcies climbed 35 percent year-over-year and greatly increased to 194 percent for corporations with assets over $50 million. When adding in small businesses the number actually decreased by 1 percent.

So the answer to the question “Why have fewer people filed for bankruptcy?” is more focused on the varying factors surrounding consumers and businesses that have been affected by the pandemic.

Quarantine

Fewer filings doesn’t necessarily mean fewer people are struggling financially. According to the American Bankruptcy Institute, filings are more than likely just delayed due to the public safety protocols put into place across the country.

Many law firms changed the way they interacted with clients by reducing traffic inside the office. Individuals that could have considered filing might have been delayed from stepping out into public due to fear of contracting the virus.

Government Assistance and Support

CARES Act assistance could also have contributed to the delay in filings. The CARES Act was issued on a widespread level, and fulfilled many temporary financial needs.

Stimulus checks, student loan interest and payment delay, as well as unemployment filings have also provided cushioning for income that didn’t exist during the Great Recession.

Receiving this kind of assistance, as well as reading the latest legislation stating debt forgiveness received before 2025 would be tax-free, might be enough to make people hold off on filing for bankruptcy.

Many people are probably trying to re-organize their financial assets first before considering something as legally in-depth as filing for Chapter 7 bankruptcy.

Talk to Groce & DeArmon, P.C.

If you have questions on filing for bankruptcy or are requesting assistance with organizing your financial assets, we can discuss your options and help you determine the best course of action for your individual situation. Our first consultation is always free. Contact Groce & DeArmon, P.C. or call toll-free 1-800-640-3706 in Missouri or (417) 862-3706.

Changes to Chapter 7 & Chapter 13 Bankruptcy Due to COVID-19

December 3, 2020 By Groce & DeArmon

The COVID-19 pandemic is still gripping the global economy, and it appears that the problems will continue into 2021. Millions of Americans are out of work and worried about where their next paycheck will come from. Even though creditors understand what’s going on and they’re willing to work with you, there may come a point when you decide to file for Chapter 7 bankruptcy.

If you’re filing for Chapter 7 or Chapter 13 bankruptcy, you may have some new options under COVID-19 provisions set forth by the federal government.

Some Government Benefits Are Exempt

Under the CARES Act, any stimulus money you received from the federal government doesn’t count towards your income you use to calculate your disposable income.

Missouri law still stipulates that other public benefits, such as unemployment compensation and Social Security benefits, are exempt from bankruptcy proceedings. This means you get to keep all of the funds from these types of assistance, and they can’t go towards paying debt.

Longer to Pay Chapter 13 Debts

For Chapter 13 bankruptcy, you have five years to pay off your debts in the restructuring plan. If you filed for Chapter 13 bankruptcy before March 27, 2020, and you’re experiencing a hardship due to COVID-19, you can modify your payment plan. Rather than five years, you may have up to seven years to pay off the plan. You’ll need to have a hearing in bankruptcy court before your restructuring takes effect.

After restructuring, your seven-year payment schedule is determined based on the date of your first payment under bankruptcy. For example, you made your first payment in June of 2019. If you receive a modification to seven years, your final payment is due in May of 2026 rather than May of 2024.

To receive this extension, you must petition the court within a year of the passage of the CARES Act. You have until March 2021 to do this for Chapter 13 bankruptcy.

Communication Is the Key

Whether you filed for Chapter 13 bankruptcy before COVID-19 happened or you’re considering filing for Chapter 7 bankruptcy now, communication is the key for both instances. Creditors are often willing to work with you to modify or restructure your loans to defer missed loan payments. Creditors can even agree to modify a Chapter 13 plan that’s already in place. Don’t be afraid to negotiate or talk to your creditors. Having a bankruptcy attorney on your side may help in this regard.

Talk to a Bankruptcy Attorney at Groce & DeArmon

Filing Chapter 7 bankruptcy can stop wage garnishments and debt collections immediately. Contact Groce & DeArmon or call toll-free 1-800-640-3706 in Missouri or (417) 862-3706 to schedule a free consultation about filing for bankruptcy.

Did Bankruptcies Increase During COVID-19? We Look at the Stats

November 19, 2020 By Groce & DeArmon

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.

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.

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.

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