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Are More COVID-Bankruptcies On the Way?

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It’s no surprise that the COVID-19 pandemic has had an unprecedented effect on the world economy. But despite the pandemic recession and economic turmoil, personal bankruptcies in the U.S. declined significantly in 2020 and 2021 — by about 30% from 2019.

However, those numbers could rise again.

With the pandemic seemingly waning, several factors have evolved that could cause a new wave of bankruptcies in the coming months.

How COVID Impacted Bankruptcy Filings

At the onset of COVID-19, several protections and government interventions were implemented. These largely contributed to the overall decrease in bankruptcies. With many of these protections already over and reverting to normal, bankruptcy filings could swell as the effects of COVID-19 fade.

Factors That May Influence Bankruptcies

Since the pandemic began, the U.S. government has injected the economy with cash to support businesses and individuals as uncertainty set in, including two rounds of stimulus checks issued directly to consumers. But the following factors could contribute to more bankruptcies as the economy climbs out of the downturn caused by COVID-19:

Protections Expiring

Most of the financial and individual protections put in place by the government have now expired. The U.S. Supreme Court ended the federal eviction and foreclosure moratorium in August 2021. People who were unable to pay their mortgages or rent during the pandemic are now being evicted and facing foreclosure, which could push them to bankruptcy.

One measure is still currently in place, however. The pause on federal student loan payments and interest has been extended until May 1, 2022. There is strong speculation about the possibility of another extension and loan forgiveness.

Inflation & Rising Interest Rates

Inflation is at its highest rate since the early 1980s, raising prices on everything from consumer goods to gas prices. The Fed has kept interest rates near zero since March 2020, but that will soon change to combat inflation.

Interest rates are projected to increase at least three times in 2022 in hopes of mitigating inflation and signaling a return to pre-pandemic levels since consumer spending and stock prices have bounced back steadily.

Rising interest rates and overall higher cost of living could pressure some households to borrow more to stay afloat, leading to eventual bankruptcy if individuals can’t keep up.

A Virtual Bankruptcy Process

The overall process for filing bankruptcy remains unchanged, but the location of your hearing may not be in court as it usually would. Many hearings are being held virtually through platforms like Zoom, which can be to your advantage since you won’t need to take extra time off work to travel to court. Virtual hearings also reduce the attorney fees a debtor can incur.

However, the potential incoming surge in bankruptcies could cause a backup in the court system. It might take longer than usual for your hearing to take place.

Increased Mediation

The expanded use of mediation during the pandemic can also benefit individuals declaring bankruptcy, especially for cases involving smaller dollar amounts. Mediation is a more flexible alternative to formal court proceedings, allowing more privacy and expediency for all parties. Mediation hearings are increasingly taking place virtually.

Since mediation is a faster option for resolving bankruptcy disputes, it could alleviate stress on the court system, as mentioned above, if bankruptcy filings build up.

Tips for Avoiding Bankruptcy

With these factors in mind and so much up in the air, individuals can take a few steps to capitalize on the current state of the economy and avoid bankruptcy.

  • Homeowners should consider refinancing their mortgages before interest rates shoot up.
  • Consumers mulling over big purchases may consider buying sooner to stay ahead of inflation.
  • With the currently volatile stock market, individuals may consider minimizing their portfolios and shifting assets to more stable long-term investments such as bonds or gold.

Contact an Ohio Bankruptcy Attorney for Help

If you’re worried you may be part of the possible wave of bankruptcies, an experienced Cleveland bankruptcy lawyer can help.

Luftman, Heck & Associates can discuss your case and determine if bankruptcy is in your best interest. If you think bankruptcy may be the right choice, call LHA at 216-586-6600 or reach out online for a free consultation.