Are Bankruptcies on the Rise? The Answer May Surprise You
Normally, the rate of bankruptcies in the United States mirrors the rate of unemployment and other economic factors. As individuals, families, and businesses suffer financially, they seek the protection and relief that bankruptcy can provide.
With this trend in mind, experts have expected the COVID-19 pandemic (and ensuring stay-at-home orders, business shutdowns, and layoffs) to trigger a steep rise in personal and business bankruptcies.
Unemployment hit its highest level since the Great Depression, and consumer spending has plummeted—but the rate of bankruptcy has declined. Chapter 7, Chapter 13, and small business bankruptcy filings are lower than in previous years, and only corporate filings have increased. The states with the highest rates of unemployment are, surprisingly, the states with the lowest number of bankruptcies.
Why Hasn’t the Rate of Bankruptcy Increased?
Researchers believe the current rate of bankruptcy filings is as low as it is for a few reasons.
These reasons include:
- Financial assistance from local, state, and federal governments (e.g., stimulus checks, enhanced unemployment, forgivable loans for businesses, etc.)
- State and federal eviction and foreclosure moratoriums (i.e., governments and other agencies forcing lenders to hold off on evictions and foreclosures)
- Loan forbearance options (for certain mortgages, car loans and federal student loans)
- General uncertainty about the future (which discourages people from making big financial decisions, like bankruptcy)
- The difficulty of accessing lawyers, courts, and other resources because of social distancing and business shutdowns
Many of these factors are temporary, which means that a wave of consumer and business bankruptcies may be on the horizon. As financial aid runs out and protections against eviction and foreclosure end, bankruptcy may be inevitable for an unprecedented number of individuals and businesses.
Why It May Be a Mistake to Delay Filing
For the above reasons, many people are putting off bankruptcy. This is only natural, especially because of the negative stereotypes surrounding bankruptcy.
Here are a few reasons why delaying bankruptcy can be a mistake:
- People often sell what they own and use up all their savings or retirement funds before considering bankruptcy. What they do not realize is that bankruptcy could have wiped out most, if not, all their debt while allowing them to keep their funds and assets.
- Bankruptcy can prevent foreclosure or repossession, but it cannot reverse it. If you fall behind on payments and wait to file bankruptcy, your creditors and lenders may seize collateral (your home or vehicle) or sue you for the amount you owe. These are serious, irreversible consequences once your home or auto is sold, and they can be avoided through bankruptcy. This is because bankruptcy immediately prevents creditors and collectors from using any method to collect what you owe.
- The longer you wait, the more debt you may pay. Forbearances will run their course eventually, and home lenders are going to want their money. In years past, when Houstonians were hit with epic floods some of these same nationwide home mortgage lenders offered consumers a three-month forbearance plan only to shockingly demand full payment of all three months on month four. Likewise, in this era of COVID related forbearances there is no guarantee of a structured time frame for a manageable repayment plan like what you have in a Chapter 13 bankruptcy. Chapter 13 allows you to repay months of mortgage payments at no interest over a three-to-five-year period. And the best part, the home lenders must accept it because it is Federal law! Bankruptcy’s central purpose is to eliminate and restructure debt. That debt could include credit card debt, medical bills, unpaid utility bills, unpaid rent, and more. When you delay bankruptcy, you might end up paying more than you need to.
- Missed payments can destroy your credit. Some people avoid bankruptcy or try out these “debt consolidation” programs because they are afraid of how a bankruptcy might impact their credit. Missing payments and following these debt consolidation programs can often do far more harm for your credit score, costing you valuable time and money. The point of bankruptcy is to obtain a fresh start. The sooner you file, the sooner you can eliminate unmanageable debt and begin to rebuild your credit. In my years of experience, I have seen countless numbers of clients receive not only immediate and life changing financial relief, but ironically, a boost in their credit score within six months to a year after filling.
In short, bankruptcy is not the financial death sentence many people believe it to be. On the contrary—it is a welcome relief for hundreds of thousands of Americans each year.
Retain the Professional Guidance You Need
Whether you are about to file bankruptcy or are simply evaluating your options, we urge you to bring your case to Phillip H. Trueba, Attorney at Law. Our lawyer has over two decades of experience helping clients with bankruptcy-related matters, and we want to use this experience to help you drastically improve your financial circumstances. We are accessible, flexible, and efficient because we want you to achieve financial relief as soon as possible.
Begin with a free consultation by calling (713) 481-0022 or contacting us online today.