The Covid-19 pandemic has caused a financial pandemic, similar to what the world experienced during the Spanish Flu of 1918. The implementation of lockdowns and other movement restrictions have compromised people’s ability to earn a living.
Many financial experts predicted that the number of bankruptcies would increase significantly this year. The increasing trend would be due to the many constraints that Covid-19 brought to the economy including an increase in unemployment.
A report earlier this year showed the average unemployment rate tripled from 3.6 percent to 13.0 percent in 2020. However, the damage was mostly felt at the lower end of the labor market, as the majority of jobs lost were occupied by workers in the bottom quartile of wage earners, according to a report by the Economic Policy Institute.
Those are the kinds of jobs offered by the hard-hit hospitality and restaurant industries, where many companies and businesses are simply closing their doors rather than filing for bankruptcy or seeking a capital infusion to work out settlements with their creditors.
A recent report showed that the number of bankruptcies in the U.S. declined by over 25%. The decrease in bankruptcy filings is contrary to modern-day financial market patterns. Usually, the filing of bankruptcies in this country increase relative to economic issues like high unemployment rates
However, things are quite different during the Covid-19 pandemic. There are moratoriums prohibiting foreclosures and evictions. There have been various rounds of PPP loans and stimulus money checks from the U.S. Government in an attempt to offset the financial hardship felt by Americans.
Reasons Behind the Decrease in Bankruptcy Filings
Financial experts have attributed the decrease in bankruptcy filings to various issues, depending on the individual’s economic capabilities and awareness level in maintaining such financial obligations. Federal stimulus money, forbearance from lenders and reduced collection actions, have been crucial in keeping many families and businesses afloat during the pandemic.
The Stimulus Checks
The U.S. government recently implemented the Federal Stimulus Package, which helped address the needs of businesses, taxpayers, business organizations, and other individual to adjust to the pandemic. Stimulus checks have helped further the economy as consumers have more money to spend, but these solutions have limited timespans. When the government stops handing out money, Americans may find themselves unable to pay their debt and look to bankruptcy to solve their problems.
The Foreclosure and Eviction Moratorium
The extension of the CARES Act addressed the needs of tenants who are living paycheck to paycheck from the foreclosure or eviction from their home or apartment arising from non-payment of rent.
Landlords cannot evict a tenant if the property contains more than five units and the landlord has received a forbearance on the mortgage. Once the forbearance duration ends, the landlord must give a 30-day notice of default to the tenants.
The question is how long will the moratorium remain in effect? Once the moratorium is lifted, consumers who face the threat of losing their home or residence may have to find sanctum in the bankruptcy court system.
Reduction in Debt Collection Actions
From the onset of the Covid-19, debt collectors in the country have made significant changes to their debt collection strategies. Individual states have put a temporary halt on debt collection in a few ways. Some state authorities have limited the seizure or garnishment of stimulus checks. Some have banned garnishment altogether. And in others, the court systems have been suspended, so no new court orders or writs can be issued. However, bear in mind that if there is an existing court order against you, this could still be enforced in these states.
Once debt collection agencies ramp up their collection efforts again, consumers who are unable to work out reasonable settlements of their debt will again look to bankruptcy for their fresh start.
What Should You Do If You Think You Need To File For Bankruptcy?
Before filing for bankruptcy, you should consider that the process is a massive step in managing finances. It’s a procedure that will force you to organize your finances and ultimately relieve your financial stress. However, Bankruptcy stays on your credit for seven years for a Chapter 13 and ten years for a Chapter 7.
Your credit rating will likely decrease during this time, which can make it difficult to access financial help. If you think you need to file for Bankruptcy, consider doing the following things first:
Get in Touch With Lenders
You should contact lenders if you face the risk of missing payments. Your lenders might provide you with better solutions during these times of hardship.
Your lender might allow you to delay or make a customized payment plan for your needs. Some lenders might also waive fees or interest. Getting in touch with your lenders may also help you avoid a negative rating on your credit report.
Consult with a Financial Professional
A professional financial consultation can help you solve many of your financial problems. It may seem like an unnecessary cost, but often times, a one-hour meeting with a bankruptcy attorney can help you plan for your future and save you thousands of dollars.
Such financial professionals have the technical know-how and experience to help you stay organized. However, they need you to be transparent about your personal livelihood. They use such information to assess the risk that you face and to recommend suitable solutions for your needs.
You should be ready to discuss personal details such as your financial assets, income, and expenses so they can assess your current economic situation and offer a viable solution.
If you are struggling to pay your debts and concerned about the future welfare for you and your family, it is important that you seek the advice of a bankruptcy lawyer to ensure that your assets are protected and the debts you seek to eliminate are dischargeable. Our attorneys have been assisting consumers and business owners with bankruptcy matters for over 25 years. If you are considering filing for bankruptcy, please consider contacting the Nomberg Law Firm. Our office number is 205-395-0532.
Steven D. Altmann has been a lawyer for more than 25 years. Steve has earned an AV rating from Martindale-Hubbell’s peer-review rating and was recently named a Super Lawyer and Top Attorney by Birmingham Magazine in the area of Bankruptcy Law.
We are a Federal Debt Relief Agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.