In March of 2020, when the COVID-19 pandemic led to business shutdowns and stay-at-home orders across the nation, economists predicted a staggering increase in both personal and business bankruptcies.
In reality, we have seen a sharp divide in bankruptcy trends. While the rate of Chapter 11 cases recently hit its highest point since 2010, consumer bankruptcies (Chapter 7 and Chapter 13) hit a 14-year low in November. This may be the result of differing levels of financial support for businesses vs. consumers.
For example, millions of workers are currently receiving enhanced unemployment and benefiting from a nationwide eviction moratorium. Furthermore, Chapter 11 became much friendlier to small businesses in February of last year, when the Small Business Reorganization Act added a streamlined reorganization option called Subchapter V. Businesses that couldn’t afford the Chapter 11 process before 2020 now have a greater likelihood of successfully reorganizing and rescuing their companies.
So, with these factors in mind, what is the outlook for bankruptcy in 2021? We may experience a similar divide in bankruptcy trends in 2021 thanks to the renewal of the following programs under the Consolidated Appropriations Act of 2021.
The CAA modifies or extends the following relief programs that were first created by the CARES Act:
- Pandemic Unemployment Assistance (PUA): This program provides benefitsfor self-employed workers, gig workers, and others who normally don’t qualify for unemployment. New PUA qualified applicants must become eligible before March 14, 2021. Individuals who already receive assistance can continue to collect through April 4, 2021.
- Pandemic Emergency Unemployment Compensation (PEUC) and Extended Benefits (EB): Had this federal funding for long-term unemployment ended on December 31st, it would have impacted roughly 4.6 million workers. Under the CAA, eligible workers can receive an extra 11 weeks of PEUC benefits. Applicants must have their eligibility approved by March 12, 2021, to receive the benefit. Those already receiving PEUC assistance can continue collecting through April 4, 2021.
- Nationwide Ban on Rent-Related Evictions: Under the CAA, the Centers for Disease Control and Prevention’s temporary halt on residential evictions was extended to March 31, 2021. Residential landlords can’t evict tenants who have used their best efforts to obtain government assistance for housing, can’t afford to pay rent due to a substantial loss of income, or would become homeless or have to move into a shared living setting if evicted.
- Federal Student Loan Forbearance, Pause of Interest Accrual, and Suspension of Collections: The COVID-19 emergency relief measures were extended on federal student loans through September 30, 2021. Interest will be temporarily set at 0% on federal student loans and Education Department-contracted private collection agencies have been ordered to stop making collection calls and sending letters or billing statements.
Why Now May Be the Best Time to File
Are you a small business owner? The debt threshold for Subchapter V bankruptcy will return from $7,500,000 to $2,725,625 on March 27, 2021. The $7,500,000 debt maximum was the result of a temporary increase per the CARES Act. If you owe more than $2,725,625 in commercial debts, you may want to consider filing Subchapter V bankruptcy before the limit changes.
If you are currently struggling with personal debts, Chapter 7 or Chapter 13 bankruptcy may be something to consider sooner rather than later, as well. Many people avoid bankruptcy at all costs by exhausting their savings, pulling from retirement funds, and selling their property. However, you may be able to use bankruptcy to reduce your debt without losing your savings, retirement accounts, or assets.
Whether you are a consumer or a business owner, consult with Boatman Law before making a significant financial decision. We can evaluate your circumstances to determine whether bankruptcy could significantly improve your situation and, if so, when you should file. Since 1988, our law firm has helped individuals, families, and businesses avoid the worst consequences of debt and achieve lasting financial freedom.