The US Bankruptcy court just published an article about statistics stemmed From 2005 to 2021 which explains the decrease in bankruptcy filings in the U.S. during the COVID pandemic.
The most drastic change in non-business bankruptcies occurred in 2005 when congress passed the ‘Bankruptcy Abuse Prevention and Consumer Protection Act’ (BAPCPA). This act made significant changes to the United States Bankruptcy Code by making it more difficult to file Chapter 7 bankruptcy which is especially concerning because it comprises a majority of non-business bankruptcy filings. Under Chapter 7 bankruptcy most debts are discharged so debtors are able to have a fresh start quickly. However, under Chapter 13 bankruptcy debtors are forced to repay a portion of the debts so the process can last up to five years.
The act has made Chapter 7 bankruptcy more difficult because it established a means test in that an individual or couple filing jointly must have primarily consumer debt and have a monthly income below the state median income or have a disposable income below a threshold established by a statutory means test.
Additionally, since bankruptcy filing rates are heavily impacted by the economic state there have been interesting filing patterns during the 2007-2009 recession and the COVID-19 pandemic. Even though the 2007-2009 recession and the COVID-19 pandemic exhibit similar patterns of economic instability the rate of bankruptcy filings during each of these periods are distinct. For instance, during the 2007-2009 recession non-business bankruptcy filings increased significantly from 775,344 filings in 2007 to 1,538,033 filings in 2010. As the economy slowly recovered the rate of bankruptcy filings steadily declined. Most economists would expect the same high rates of bankruptcy to occur during the pandemic since there was also a severe financial crisis. However, the reverse occurred due to government initiatives that prohibited evictions and foreclosures through July 2021 causing the bankruptcy filings to decrease from 753,764 in 2019 to 418,400 in 2021. As the pandemic has come to an end it is expected that the bankruptcy filings will increase again as these government initiatives are no longer in place. For debtors who need to file a bankruptcy due to a reversal of COVID-19 era protections a reputable bankruptcy attorney might be the best option.
By: Law Clerk, Hannah Kelly