How the Coronavirus Pandemic Has Affected Bankruptcy Filings
The Coronavirus pandemic will likely have far-reaching effects on the economy and the legal system for years to come. In 2020, there was actually a sharp decrease in Bankruptcy filings, down approximately 30 percent from 2019 and was the lowest since 1986. However, the coronavirus pandemic has caused and will continue to cause sharp swings in the economy putting many businesses and families into economic uncertainty as layoffs occur and businesses collapse.
Most experts expect bankruptcies to increase in the coming years. The number of bankruptcy filings is reflective of the economy and is an indicator of a future economy in decline. Most people who file for Bankruptcy do not do so immediately and typically wait until the “last moment” to file for Bankruptcy protection.
In Pennsylvania in 2020, 14,205 total bankruptcies were filed — one-third fewer than in 2019, when 21,296 Bankruptcy cases were filed. The only type of Bankruptcy that increased nationally was Chapter 11 Bankruptcy, where corporations declare bankruptcy to restructure their debt in an effort to survive.
When businesses close, there is a ripple effect on the economy as businesses are dependent on each other. When a restaurant closes, for example, their landlord does not receive rent, their suppliers do not fulfill orders and when employees are laid off, they are not spending their money to fuel the economy.
Unemployment will be the main reason people will have to file for Bankruptcy protection. As more businesses fail and more employees are laid off due to coronavirus, many people will turn to their credit cards to survive. Once credit runs out and credit cards are maxed out, individuals will turn to Bankruptcy, primarily Chapter 7 Bankruptcy, to discharge, or wipe out their credit card and other unsecured debt. One of the few businesses that will thrive in this situation are debt collection companies who will no doubt begin calling and sending threatening letters that they will sue to recover the debt and seize the person’s property. People will turn to Chapter 7 Bankruptcy to protect them from their creditors, as creditors are prohibited from calling, writing or otherwise attempting to collect a debt. That is the reason it is known as “Bankruptcy Protection” as you are protected from debt collection activity – calls, lawsuits, bank account freezings etc., by the Federal Bankruptcy law.
Chapter 13 Bankruptcy filings will no doubt explode due to coronavirus for people who have fallen behind on mortgage and/or vehicle payments due to unemployment or underemployment. Many people have asked their mortgage company or their vehicle lender for deferment due to a decrease of income or lack of income altogether. While the government put a temporary freeze on mortgage foreclosures due to the pandemic, at some point that freeze will be lifted and millions of foreclosures will occur across the country, ultimately resulting in Sheriff Sales where homeowners will lose their homes. Chapter 13 Bankruptcy will stop foreclosure, stop a sheriff sale and homeowners can keep their property and catch up on their arrears through the Bankruptcy Court. Additionally, banks will begin to repossess vehicles due to missed payments and Chapter 13 Bankruptcy will allow people to keep their vehicles and catch up on their arrears through the Bankruptcy Court.
If you are experiencing financial difficulties due to the pandemic, whether it be credit card debt, missed auto loan payments or if you have fallen behind on your mortgage payments, you should speak with one of the experienced attorneys at Ellis B. Klein & Associates. Bankruptcy is an extremely complex process which is virtually impossible to successfully complete on your own and without the assistance of an experienced Bankruptcy Attorney. Additionally, there are income limits for Chapter 7 Bankruptcy and if you become employed again, there may be situations where you cannot file due to Chapter 7 if you make more money that what is permitted. Call us at (800) 536-0501 for a free consultation to see if Bankruptcy protection is right for your financial situation.