While the Covid-19 pandemic continues to speared and surge across the U.S., it has also been causing economic devastation in its path. Surprisingly, although the pandemic with its business lockdowns that has led to record number of unemployed Americans, there has been a significant decrease in bankruptcy petitions filed over the past few months. This decrease was probably caused by both the psychological and emotional impact of Covid-19 with people focusing on their health and family first. However, the immediate need of filing for bankruptcy relief was also set aside by the various financial benefits that were created by the CARES Act and the executive orders issued by Governor Cuomo in New York. While filings remain relatively low through June 2020, many experts predict an expected wave of bankruptcy filings in the near future.
Total Bankruptcy Filings by Jurisdiction
2019 Filings Jan Feb Mar Apr May Jun
Eastern District of NY 1466 1254 1576 1503 1573 1409
Southern District of NY 635 891 701 823 802 648
2020 Filings Jan Feb Mar Apr May Jun
Eastern District of NY 1387 1242 982 328 421 511
Southern District of NY 640 652 547 405 421 409
Source: American Bankruptcy Institute
It is clearly evident from the figures above that bankruptcy filings in the Southern and Eastern Districts of New York through June 2020 are down when compared to last year’s filings over a similar period. The economic stress created by the mixture of unemployment, underemployment, expiring benefits and a worsening economy is likely to lead to more bankruptcies, especially now that the Federal $600 a week unemployment insurance (UI) benefit has expired. (As of the publication time of this blog post, the Federal UI benefit expired and has not been renewed or replaced.)
Corporate Filings Are Set to Increase
2020 has already seen a number of high profile corporate bankruptcies from companies with household names, such as Hertz, J. Crew, JCPenney, Brooks Brothers, Neiman Marcus, and most recently California Pizza Kitchen and Lord & Taylor. Corporate bankruptcy filings are likely to further increase this year. Companies that go into Chapter 11 bankruptcy can try to restructure their debt so they can stay open. Many of the retail stores are expected to close non-performing stores and focus on online sales which obviously has lower rental costs associated with it. This will likely have a domino effect on the retail real estate industry. If a Chapter 11 plan fails or cannot be worked out in the first place, the corporation will be liquidated instead. The assets of the company, including equipment, inventory and property, etc. are sold off to pay debts, and the company is dissolved.
Many companies have been able to put off bankruptcy by conserving cash and keeping themselves solvent. Since the COVID-19 pandemic started, companies have been taking advantage of federal and state pandemic-relief programs, as well as drawing down existing credit lines, furloughing workers and delaying projects. When the money from pandemic-relief programs runs out, these companies will start spending their cash to keep themselves afloat. When a company burns through their cash, a bankruptcy filing becomes much more likely. Bankruptcy often provides a company with their best chance of survival as it approaches insolvency.
A Wave of Personal Bankruptcy Filings Is Likely
Various factors have led to a decrease in bankruptcy filings from March 2020 through June 2020. These include the Federal $600 a week UI benefit, foreclosure and eviction moratoriums, forbearance programs offered by mortgage servicers or created by government mandate, and payment deferment programs being offered by some credit card companies. Now that the Federal UI benefit has expired, bankruptcy filings may start to increase. The money from this benefit has enabled many unemployed workers to continue paying their bills, such as mortgage or rent, credit and store cards, and utility bills. It has also kept food on the table for many families. Unfortunately, Congress is presently deadlocked over either extending this benefit or creating a new one that is tied to the unemployed worker’s former wages. If Congress does not act soon, many New Yorkers will likely consider filing for bankruptcy.
One of the primary benefits of bankruptcy is its ability to eliminate and discharge credit card balances, personal loans and medical bills. These are some of the types of debts that have been exacerbated by the Coronavirus crisis. The best way to know whether bankruptcy is an option you should consider, is to speak with an experienced bankruptcy attorney. If you are considering bankruptcy, you can contact the Law Offices of David I Pankin, PC at 888-529-9600 or by using our easy online contact form. See what our client’s are saying about us at Brooklyn bankruptcy lawyer reviews.