Bankruptcies Expected To Increase Dramatically As A Result Of The COVID-19 Pandemic
Bankruptcies always spike during difficult economic times. We saw them increase during the “Great Recession” of 2008, and we expect them to increase now, as a result of the coronavirus outbreak. In fact, experts are saying that we may see a record number of bankruptcies. If you need to file for bankruptcy, you should know that you are certainly not alone in these unprecedented times. Filing for bankruptcy is a difficult and disheartening decision, but an experienced attorney like Michael Alan Siddons can make it easier.
As Bad As The Great Recession
Experts are predicting that the flood of bankruptcies that will result from the current economic crisis will be as bad as what we saw during the Great Recession, if not worse. Toward the end of the Great Recession (2010) bankruptcies peaked at about 1.5 million.
According to research from economists at three Federal Reserve banks, coronavirus-related bankruptcies are expected to increase by 200,000 to reach a total of approximately 1 million. What’s most troubling is that these predictions are just for the near future: we don’t know when we will see a peak or how long our economy will be shut down. If our economic hardships last for several years, you can expect to see a dramatic increase in bankruptcy filings.
Additional research from a distinguished professor at New York University’s Stern School of Business paints an even bleaker picture of coronavirus-related bankruptcies. In 1968, Professor Edward Altman developed the Z-score for predicting business failures–a method that is widely used to this day. Regarding the coronavirus outbreak, Altman stated that we are facing an unprecedented situation.
Altman predicts a spike in both personal and corporate bankruptcies. According to Altman, part of the reason that the current economic downturn is expected to be so devastating is that Americans have more outstanding debt than they did in any prior downturn. The combination of huge outstanding debt and lost jobs/wages could spell economic disaster.
One of the biggest fallouts of the COVID-19 outbreak is the massive unemployment that we are experiencing. With whole industries (e.g. travel and food service) virtually shut down, many Americans don’t have jobs to go to. In the three weeks following nationwide business shutdowns, more than 17 million Americans filed for unemployment.
This number could increase as more businesses are either forced to shut down or make the decision to close due to a lack of customers. Again, one of the scariest things about this virus – and the large-scale unemployment that it is causing – is that we are in unknown territory. When it comes to the current surge in unemployment, three of the most common questions that we hear are:
- When will businesses open back up again?
- Will people have money to spend when businesses reopen?
- What will the “new normal” look like and how long will it last?
Unfortunately, the answer to all these questions is that we just don’t know. We expect many businesses to declare bankruptcy as a result of lost revenue, we also expect many individuals to declare bankruptcy as a result of lost income. One thing that nearly everyone agrees on is that things will get worse before they get better.
There Were Troubling Signs Even Before The Coronavirus Outbreak
In a lot of ways, the outbreak of COVID-19 could not have come along at a worse time. While news outlets are focusing on the virus’s impact on the economy (and rightly so), a recently released report from the American Bankruptcy Institute shows that bankruptcies had been increasing in some parts of the country even before COVID-19 reached our shores. For example, the trade war between the U.S. and China has had a devastating impact on Iowa farmers and the communities they live and work in. Between March 2019 and March 2020, Iowa saw a 10 percent increase in bankruptcy filings.
Likewise, Texas energy companies had been cutting jobs before the COVID-19 outbreak, largely due to a decrease in shale drilling. Our second-most populous state saw a 3 percent increase in bankruptcy filings from March 2019 to 2020. In fact, the South, in general, experienced a marked increase in bankruptcy filings over the same period.
The southeastern U.S. currently claims the highest rate of bankruptcy filings per capita. Because the South is America’s poorest region, experts predict the highest rates of coronavirus infection and death to occur in southern states. That said, the East Coast had been showing signs of economic slowdown prior to the COVID-19 outbreak as well. The American Bankruptcy Institute report shows that Delaware, for instance, saw an 8 percent increase in bankruptcy filings–the second-highest increase after Iowa.
What To Do If You Need To Declare Bankruptcy
If you need to declare bankruptcy because of the COVID-19 outbreak (or because of any other economic hardship), the first thing you should do is contact an experienced bankruptcy attorney like Michael Alan Siddons. Siddons Law offers zero down Chapter 7 bankruptcy with affordable payment plans, for those in dire economic straits. Zero down Chapter 7 bankruptcy allows you to file for bankruptcy without going deeper into debt. This can be a lifesaver for you and your family. Call Siddons Law to see if you qualify for $0 down Chapter 7 bankruptcy.
Unfortunately, many people who file for bankruptcy during this economic downturn will attempt to do so without the help of a lawyer. This is a huge mistake, akin to performing corrective surgery without the help of a doctor. When attempting to file for bankruptcy yourself, you greatly decrease your chances of success and greatly increase the likelihood of complications.
Make the right decision and call a licensed bankruptcy lawyer if you need help. One of the keywords to emerge during this pandemic is “recovery.” Contacting an experienced bankruptcy attorney will be an important first step toward your financial recovery. Remember, we are all in this together.