Bankruptcy experts agree that the financial distress resulting from the COVID-19 pandemic will push more struggling consumers to look at the fresh start of bankruptcy, remembering how the Great Recession caused a wave of bankruptcy cases from consumers seeking a reset after getting too far behind on debt, MarketWatch.com reported. “We think business filings will see an uptick in April with consumer filings to surge in May and June,” said ABI Executive Director Amy Quackenboss. The increase could take a bit longer because in times of crisis, “people don’t normally race off to file bankruptcy,” said John Rao, a National Consumer Law Center staff attorney specializing in consumer bankruptcy. Still, “there is no question that given the effect of this pandemic, there will be an increase of bankruptcies. It’s really a question of when that rise will occur.” There were more than 770,000 bankruptcies filed last year, according to the organization. That’s less than half of the nearly 1.6 million cases filed in 2010 during the Great Recession. In fact, bankruptcy filings hit a 10-year low in 2018. But while bankruptcy filings have dropped in recent years, household debt has climbed. Americans had $14.15 trillion in household debt as of 2019’s fourth quarter, according to Federal Reserve Bank of New York data. For context, the recession-era peak was $12.68 trillion during the third quarter of 2008. Read more.
In related news, lawyers and advisers who work on the largest corporate bankruptcies in the U.S. say that they expect a deluge of debt restructurings and chapter 11 filings due to the massive disruption caused by the novel coronavirus, WSJ Pro Bankruptcy reported. They have been inundated in recent days by calls and emails from lenders about cash-strapped companies drawing down loans and fielding inquiries about whether their clients can get money under the $2 trillion emergency stimulus package. When this predicted surge in bankruptcies will hit — whether it will be weeks or months from now — is anyone’s guess. But given the breadth of the disruption, bankruptcies are expected in many corners of the economy. “What makes the present crisis in many ways more odious than the last one is that it affects everyone,” said James Peck, a former bankruptcy judge who oversaw the chapter 11 case for Lehman Brothers when it collapsed in 2008. “It affects consumers and it affects people where they live. Nobody can escape and there’s no place to hide.” The spike hasn’t caused an immediate jump in corporate bankruptcies, which require financing and — absent an emergency — usually take weeks or months to prepare. Nationwide there have been more than 1,600 chapter 11 filings through March 20 of this year, about 200 more cases than were filed through the end of March of last year, according to data firm BankruptcyData. Read more.
Don’t forget to register for these important abiLIVE webinars:
- Today: The Small Business Reorganization Act: How It Helps in Today’s Health & Economic Crisis
- Monday: Tools to Navigate the Financial Crisis Related to COVID-19 (Featuring Former House Speaker John Boehner!)
- Tuesday: The Consumer Provisions of the CARES ACT, and Local Court Responses to the Pandemic
- Wednesday: Preference Update: SBRA’s Due Diligence Requirement
