The COVID-19 pandemic has undoubtedly altered the U.S. economy, with record numbers of unemployment claims, business closures, lay-offs, and more. Businesses and individuals have had to set new benchmarks for what success looks like for their finances, and it’s become harder to prepare for the future.
Let’s look at what current relief looks like and what may be next for bankruptcies in 2021.
Status of economic relief
The government is currently in talks to provide additional stimulus checks to Americans with still no end date in sight. Eligible Americans (those making under $75,000 for individuals and $150,000 for couples) received a total of $1,800 combined in March 2020 and January 2021, which is not often enough for many people who are struggling after being laid off or having to close their business.
Other forms of relief are related to student loans and evictions. Federal student loan borrowers just got an extension on when they have to start making payments again, now not until September 30, 2021.
The current administration also extended the eviction moratorium until at least March 31, 2021. An estimated 107 million Americans live in rental homes and are at least somewhat protected from being evicted if they fall behind on rent.
Even while more relief may be on the way, it is still a challenge for many to stay financially afloat as the unemployment rate is still high and the pandemic is still creating many economic problems.
The state of bankruptcy filings
Big brands like Hertz and JC Penney filed for bankruptcy in 2020, along with hundreds of thousands of non-business filings. But, the news isn’t all bad: Data shows that, despite the effects of the pandemic, bankruptcy filings decreased 29.7% in 2020. (However, Chapter 11 reorganization filings rose 19.2%.)
The decrease in bankruptcies could be because in March 2020 and beyond, courts shut down and it was harder for the public to access them. In economic downturns, bankruptcy filings also may take months or even years to spike. So even while the news from 2020 is good, the worst may still be coming as Americans run out of options and government relief.
Proposed bankruptcy legislation
It’s also worth noting that there could be new bankruptcy legislation introduced sometime soon. Several U.S. Senators – Elizabeth Warren, Dick Durbin, and Sheldon Whitehouse – and House Representatives – Jerrold Nadler and David Cicilline – have proposed the Consumer Bankruptcy Reform Act of 2020, which would make it easier and cheaper for people to find relief through bankruptcy.
For instance, student loan debt would be included as consumer debt, chapters would be condensed into one process, and some loopholes would be eliminated, among other changes.
If we do see a spike in bankruptcy filings in 2021 and years following, perhaps new legislation will be introduced to make it easier for businesses and individuals to find their financial fresh start.
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