For bankruptcy attorneys, it’s no secret that bankruptcy filings have dramatically decreased since the start of the pandemic. While we initially believed that it was merely a function of people not going out to see their attorneys (despite the rise of virtual meetings) or the closing of courts and therefore collections activity, the filings remained in decline. In fact, from April 1, 2020 until March 31, 2021, bankruptcy filings had declined by 38.1% according to recent statistics released by the Administrative Office of the U.S. Courts.
What can we make of this statistic?
Like any poll or survey, it’s important to take a closer look at the numbers. First, this figure also includes business filings. Consumer bankruptcy filings always outnumber business bankruptcy filings, but consumer bankruptcy filings were down 38.8%. Now let’s look at real numbers. From April 1, 2020 through March 31, 2021, there were 453,438 consumer bankruptcy filings. In the prior twelve months, there were 741,168 consumer cases. No matter how you frame it, that’s a significant drop. It should be noted that filings have been on the decline for many years, just never this steep.
Why are the numbers down?
There are a number of theories as to why the numbers are down. The easy answer is to blame the COVID-19 pandemic. While that may be the case, it’s more specific than that. For starters, with courts closed for an extended period, debt collection activity had slowed and foreclosures were on hold. Often it takes aggressive creditor activity or lawsuits to drive people to seek help with their debt.
Another possible pandemic-related answer may be due to the mortgage and student loan relief offered. As part of multiple relief (stimulus) packages, lenders were offering COVID forbearances. Many student loan payments were also deferred. This led to people having funds saved to go towards paying down debt, so bankruptcy was not immediately necessary.
Staying with the stimulus packages, there were three monthly checks sent to many Americans to help during these difficult times. An individual who met the income guidelines could have received up to $3,200 in stimulus payments while a married couple with two kids could have received up to $11,400, if they met the income guidelines. In many cases, those funds went towards paying off debt. There have been a number of articles highlighting the use of stimulus funds to pay off debt, rather than stimulating the economy.
Finally, while millions of jobs were lost, unemployment benefits were expanded to cover independent contractors and other workers typically not eligible for unemployment benefits. Weekly benefits increased and the length of eligibility for benefits also increased as part of the pandemic relief.
What does this mean for future filings?
That’s really anyone’s guess. Some attorneys were predicting a large spike or wave of filings but now that doesn’t appear to be the case. Bankruptcy filings are cyclical and will likely increase in the coming twelve months, even if they don’t reach pre-pandemic levels. At some point order will be restored, forbearance and deferments will end, and debt will come due.
I always suggest attacking a debt problem early rather than waiting until the last moment after exhausting any savings. You would be surprised how much you can protect even when filing bankruptcy and there may be better options outside of bankruptcy that do not involve giving every last dollar you have to your creditors. A good attorney will discuss all options available to help you manage and eliminate debt, not just bankruptcy. That knowledgeable and experienced debt attorney can guide you to the best options to protect you and your assets.
Zimmelman Law PLLC
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