Federal Reserve researchers are predicting that the number of coronavirus-related bankruptcies will surge to over a million in the coming months. The caveat is that Congressional efforts to stem the financial bleeding of our nation may have some impact on those numbers.
Those who are already in a difficult financial position before the quarantine are more likely than not to require the services of a bankruptcy attorney in the coming months. Those who were already in bankruptcy can expect their bankruptcy to continue to move forward despite measures put in place to stop the spread of the coronavirus.
In this article, we’ll take a look at the financial impact that the coronavirus quarantine is likely to have on the U.S. economy.
What is the Government Doing to Help Americans?
The federal government, alongside state governments, has issued a series of moratoriums on debt collection practices that could help Americans out during this difficult ordeal. As an example, there is a moratorium on any foreclosures during this period. But once the quarantine is lifted, what will the banks do?
Those who are receiving money through unemployment right now may be getting enough money to pay off their mortgage, car loan, monthly expenses, child support, and more. Those who are only getting the $1,200 stimulus check, though, may have a very different outcome.
One expert believes that the dollar amount of bankruptcies that emerge from this period will set records for the highest discharged amounts in the history of our nation. He says that there are much larger amounts of debt now than during any prior economic downturn. This not only includes individuals and married couples filing for bankruptcy but corporations as well.
Will government efforts to stem the economic bleeding be successful? No one really knows. At present, economists don’t expect the number of bankruptcies to rise as high as during the Great Depression, but continued deterioration of the economy could lead to similar numbers.
Debtors May Be Blindsided Once the State of Emergency Is Lifted
Those who have lost jobs during the coronavirus quarantine may find themselves blindsided by mounting debt once the state of emergency has been lifted. Consider the fact that there is only a moratorium on foreclosures and evictions while the lockdown is in effect. Once the lockdown has been lifted, lenders and landlords are going to come searching for their money. What happens next is anyone’s guess.
Congress could pass some form of consumer protection legislation to force lenders and landlords into arbitration with delinquent tenants or borrowers. This would have the advantage of forestalling foreclosure and eviction, but borrowers would only be able to keep their homes if they can meet the revised terms of their lending agreement and repay arrearages. That means that families that are currently not in danger of facing foreclosure will once the country is reopened. And their ability to remain in their home may depend on whether or not they have any new income coming in.
With more corporations in foreclosure, this can result in serious consequences for the job market. Positions that existed before the closure may no longer be available once the country is reopened.
Seventeen Million Apply for Unemployment Benefits
Already, the system in place that is attempting to stem the economic bleeding of the coronavirus is overtaxed. Since unemployment benefits are mostly handled at the state level, the ability to draw funds from that trust depends entirely on the funds being available. Some states may struggle to find the funds to pay out the myriad of claims they are now facing.
More than 17 million Americans have applied for jobless benefits in the three-week period. Meanwhile, some are predicting that there could be as many as 30 million unemployed Americans by the time the quarantine is over.
Worse still, many individuals are finding it very difficult to even apply for unemployment benefits as government servers and the ability to process claims are compromised with so many applying for unemployment at the same time.
Small Businesses Can Now Borrow Cheaply
As part of the $2.5 trillion stimulus package, small businesses will be able to apply for low-interest loans that are backed by $350 billion in government aid. But if the application process is anything like the process of applying for unemployment, there will be more small businesses applying that can be handled effectively. Additionally, this money has yet to make its way to small businesses yet, meaning that there will be continued job losses during the pandemic.
Is Bankruptcy a Viable Means of Handling Debt Problems?
Yes. The bankruptcy system exists to protect the economy and consumers from entering a debt “black hole” from which they can never escape. It’s necessary to the functioning of a healthy economy and exists in the form it exists to protect both lenders and borrowers.
Those who are facing mounting debt due to the coronavirus will be able to file under Chapter 7 or Chapter 13. There will be a lower likelihood that a bankruptcy filer would be rejected from applying under Chapter 7 due to the lack of income coming in.
Chapter 13 filers can begin making moves to keep their homes or prevent the repossession of their vehicles during this period. They would also be expected to repay any arrearages while also repaying some of the nonpriority unsecured debt that they owe (like credit card expenses).
Additionally, creditors may be more willing to renegotiate loan contracts in a post-coronavirus world than they were beforehand.
Talk to a Kennesaw Bankruptcy Attorney Today
For those who are facing financial problems during the coronavirus crisis, there is very little news that appears to be assuaging their anxiety. Nonetheless, the law protects every borrower from situations that arise due to factors they may have no control over. Bankruptcy is one option to right your ship and get back on the path to financial freedom. Call today to learn more.