Has COVID caused an uptick in bankruptcies?

by | Jun 22, 2021 | Bankruptcy |

The pandemic sickened millions of Americans and cost the lives of at least 600,000. The resulting shutdowns ordered in each state, including South Carolina, likely saved hundreds of thousands of lives.

But they also had a serious economic toll. Bars, restaurants, movie theatres, concert venues and shops shut down, putting millions of Americans out of work in an instant. Many experts predicted a surge of Chapter 7 and Chapter 13 bankruptcy filings as households throughout the country would no longer be able to manage their debt.

That did not happen. In fact, personal bankruptcy filings dropped 30 percent in 2020 compared to 2019. And as of May, filings this year are down 29 percent from the same point last year.

Fewer bankruptcies: two possible explanations

A lot of this trend has to do with the federal government’s efforts to help families in economic trouble due to the pandemic. Stimulus checks, extra unemployment benefits and moratoriums on evictions and foreclosures probably have helped kept many unemployed and underemployed Americans afloat financially.

But those measures won’t last forever. Meanwhile, in many South Carolina households, the debt continues to build. Which leads us to another possible explanation for the dip in bankruptcy filings: people tend to wait too long to seek bankruptcy protection.

It takes an average of 22 months after someone receives their first 90-days-past-due notice on a bill before they file for bankruptcy. In a 2018 survey, two-thirds of respondents said they “seriously struggled” with debt for at least two years before turning to bankruptcy. In that time, most households’ debt problems become worse, accruing an additional monthly average of $4,000 in unsecured debt.

Don’t ignore mounting debt

Bankruptcy is not something to take lightly. But not exploring your options for getting out of debt is no way to handle them. The more information you have, the smarter decisions you are able to make to help yourself and your family.

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