With 5 months of the Pandemic behind us in the US, millions of jobs lost, mortgage and rent payments missed, many are wondering, where’s the Tsunami of Bankruptcy filings? In fact, compared to 2019, Bankruptcy filings are down! And, Bankruptcy Courts have remained open throughout the US and here in Illinois, so access is not a problem.
So far, we are at the “Eye of the Storm”. It is always calm right before the storm! A few factors are in play now:
- Consumer debt (credit card balances) is actually down-people were home more, and actually pared down their debt, and reduced their spending. With so much uncertainty, and store and restaurant closures, they had no choice!
- The Government Programs helped many businesses pay and keep their employees. Programs such as the Payroll Protection Plan (PPP) allowed businesses to keep employees on the payroll, and, the hope is, get to reopen their business. And, that program was extended and given more funding recently. Employers have until December of 2020 to use the forgiveable loans. This may have kept some Small Businesses open, or may have just delayed other Small Business Bankruptcies.
- Mortgage Forbearances: the Federal Government issued a Moratorium on Foreclosures on Government-Backed loans. Some states, such as Illinois, also provided eviction moratoriums. These time periods are set to expire soon. Lenders may allow borrowers to make the payments at the end of the loan, while other borrowers will be required to make all suspended payments at once. No guarantees on how this will turn out!
- Extended Unemployment benefits: The Federal Government extended Unemployment compensation in the CARES act, giving self-employed gig workers the chance to claim unemployment benefits. And, people were given a $600.00 boost per week, on top of any state benefits. In some cases, people got more money staying home than actually working (a true unintended consequence!)The extra $600.00 expired on July 31st, and Congress is working on new legislation right now.
- Court Slowdown: While Bankruptcy Courts were basically operating the whole time, state courts in Illinois essentially closed for a few months, with only criminal and emergency matters being heard by video. Creditors, who normally flood the courts with collection matters, weren’t able to have their cases heard, and they have been delayed. These type of lawsuits lead to Wage Garnishment Orders, which allow the creditor to deduct money from a Defendant’s paycheck, to pay a Court Ordered Judgment.
Once these factors change, and turn more back to “normal” conditions, Businesses will need the lifeline that Bankruptcy can provide, to protect them from creditors, and try to either survive in Chapter 11, or to protect the owners and close in a Chapter 7 Case. And consumers will need the protection from Creditors in Chapter 7 or Chapter 13 Bankruptcy once they are able to use the Courts to enforce their Debts.
2020 has proven to be unpredictable for sure. We are here to help you weather the storm! We offer in-depth video and phone consultations, and will help you get a clear picture of your options! And, if you have questions, now is the time to act, before you or your business are under more pressure, when the storm hits!
Daniel J. Winter