The current economic shutdown is wreaking havoc on several industries which now have no income coming in during the coronavirus quarantine. This has resulted in several layoffs and a reported 18 million Americans have filed for unemployment in the last three weeks. That number appears to be growing.
With so much uncertainty about the future, many individuals, married couples, and families are understandably afraid of what the future holds. We are just beginning to feel the ripple effects that the shutdown will have on our lives. In this article, we’ll discuss how bankruptcy works for companies and individuals and how it might help you after the coronavirus situation has stabilized.
Those Considering Bankruptcy Will Likely be Pushed Into It
Anyone who was having difficulty making ends meet before the coronavirus situation will likely find themselves in a worse position after the quarantine is lifted. Most (but not all) sectors of the economy have absorbed major losses while the economic shutdown is in place. First, this will impact companies that are forced to shut down. Their workers will then go apply for unemployment.
The workers who have applied for unemployment have had major difficulties getting through to their state’s Department of Labor to file these claims. Some have been waiting for weeks to file a claim after getting laid off from their job. These individuals likely don’t have any form of income coming in, and those who do can expect revenue streams to shrink the longer the quarantine remains in effect.
By May or June, at least 10 percent of the American workforce (and as much as 30 percent according to some models) will be or are presently out of work with more being added every day. Experts are predicting a surge in consumer bankruptcies in May or June, but the problem will hit the commercial sector much faster and has already resulted in several corporations announcing that they are either on the brink of bankruptcy, considering bankruptcy, or are likely to file for bankruptcy soon.
Companies Currently in Bankruptcy
The XFL recently filed for bankruptcy after showing signs of early success. Despite this, it is unlikely to return for another season and employees have already been laid off.
Meanwhile, sports isn’t the only industry that’s been devastated by the coronavirus. Several restaurants and restaurant chains are also losing millions while the quarantine remains in place.
Retail stores have also been hit hard by the coronavirus since they depend on in-store shopping that cannot be conducted right now. JCPenney recently announced that they would be exploring the possibility of bankruptcy once the dust has settled. True Religion, a jeans retailer, announced that they too would be filing for bankruptcy.
Already, amusement parks are considering whether or not they should file for bankruptcy, anticipating that the summer may be lost while America social distances.
And each of these companies has hundreds, if not thousands of employees, who are now laid off due to the coronavirus crisis.
Differences Between Consumer and Commercial Bankruptcies
There are several chapters of bankruptcy each of which relate to a different enterprise or industry. For example, farms can file under their own chapter of bankruptcy. Even municipalities can file for bankruptcy.
Consumers, on the other hand, have three chapters of bankruptcy to choose from: Chapter 7, Chapter 13, and Chapter 11. No consumer would ever choose to file under Chapter 11, but restrictions placed on Chapter 7 and Chapter 13 sometimes make that necessary.
Companies can file under Chapter 7 or Chapter 11. But Chapter 7 works differently for a company than it does for an individual. If a company files under Chapter 7, the assets of the entire company are liquidated to repay creditors and the company is dissolved.
Chapter 11 allows companies to remain open while they reorganize their debts and liabilities and agree to make payments over an indefinite time period. For consumers, Chapter 11 is similar to Chapter 13, but consumers must make payments over a three- to five-year period as opposed to the bankruptcy remaining open until required debts are paid. Chapter 13 is only available to consumers.
Statistics from Other Recessions
The bankruptcy code didn’t exist in the same way that it exists today during the Great Depression. However, we now have the exact same system as we did in 2010 during the Great Recession, brought upon by the housing market collapse.
In 2010, there were roughly 1.6 million consumer bankruptcies, which is a little more than double the amount of bankruptcies we had last year (770,000).
Bankruptcy filings hit a 10-year low in 2018. This, of course, is good news. The fewer bankruptcies there are, the better the overall economic situation. However, even as the number of bankruptcies hit record lows in 2018, the amount of debt held by each individual household actually went up during the same period. As of 2019’s fourth quarter, American households held over $14 trillion in debt. Now, these same people are out of work as the coronavirus continues to cause problems for health care workers and hospitals.
Coronavirus Stimulus Bill Makes Changes to Bankruptcy Code
The Coronavirus Aid, Relief, and Economic Security (CARES) Act offered billions in forgivable loans to small businesses and $1,200 checks to each American. The $1,200 checks do not count as “income” for the purposes of taking a Chapter 7 means test. In other words, the $1,200 check can not push your income over the income restriction that potentially bars people from filing under Chapter 7.
Similarly, for Chapter 13 bankruptcies, the $1,200 checks do not constitute “disposable income” which would be limited while a Chapter 13 bankruptcy is still open. Further, those who experience economic hardship during the coronavirus crisis will have a year to change the terms of their Chapter 13 bankruptcies. Repayment terms may be extended up to two years. A number of these bankruptcies will eventually end up converted into Chapter 7.
Talk to an Acworth Bankruptcy Attorney Today
If you’re facing financial hardship during the coronavirus crisis and can’t pay off your debts, one option is to file for consumer bankruptcy. The Roger Ghai Law Offices helps consumers manage their debts and start fresh. Call today to learn more about how we can help.