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Hundreds of thousands of Americans who have lost their jobs during the coronavirus pandemic could be confronting an added barrier as they seek to rejoin the workforce: a bankruptcy on their record, the Wall Street Journal reported. Federal law allows private employers to turn down a job applicant because of a past bankruptcy filing, which employers can ask about on a job application or learn about through a credit check. Some business groups support the practice, saying that there are instances when the information is relevant, such as in hiring for positions that handle money. Consumer advocates disagree, saying that bankruptcy isn’t necessarily a sign of financial recklessness, but rather is frequently the unintended consequence of health problems or a divorce — or this year could involve a business done in by the pandemic. “There are millions of people, some who may have to file for bankruptcy as a result of [the pandemic], that could be adversely affected when they try to re-enter the job market,” said Tara Twomey, executive director of the National Consumer Bankruptcy Rights Center. While it isn’t clear how many of the 21 million people currently unemployed may have filed for bankruptcy, University of Illinois at Urbana-Champaign law professor Robert Lawless says that the number could exceed 750,000 based on his estimate that at least 3.6 percent of the U.S. adult population has filed for bankruptcy in the last 10 years. An average of about 800,000 people filed for bankruptcy annually during the last five years, a figure that is expected to rise as the U.S. economy falters.

While companies large and small are already succumbing to the economic effects of the coronavirus, experts say the wave of bankruptcies is going to get bigger, the New York Times reported. Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis. Even a meaningful rebound in economic activity over the coming months won’t stop it, Altman said. More than 6,800 companies filed for chapter 11 bankruptcy protection last year, and this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said. Without reform in the system, “we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics said in a letter to Congress in May. Robert J. Keach, co-chair of ABI's Chapter 11 Reform Commission, said that many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs. But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Keach said. Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.