The Ebb and Flow of Bankruptcy Trends: What Tides Will Come in 2022?
It’s no secret that bankruptcy trends have been strongly affected by the COVID-19 pandemic in the past few years. Our team of professionals at Weltman continuously studies current and past bankruptcy trends to better predict and anticipate future bankruptcy filing volumes. In our recent Weltman webinar, The Current State of Bankruptcy Filings and What’s to Come: A Look Ahead to 2022, attorneys Monette Cope, Garry Masterson, and Erin McCabe had a roundtable conversation about potential trends for the upcoming year moderated by bankruptcy group chair and shareholder Scott Fink.
Let’s take a look back to the beginning of the pandemic
Bankruptcy trends historically ebb and flow due to market conditions. Looking at previous years of bankruptcy trends, they can easily tell a story through economic trends, unemployment rates, and many other factors.
The initial increase of layoffs towards the beginning of the pandemic created many hardships. Millions of individuals and families were losing their jobs due to the effects of the virus. Many of us didn’t know what to expect, asking ourselves, “When will things go back to normal?" and "How can my loved ones and I function with this dilemma?”
Throughout this strenuous time, patterns have started to form. For example, we’ve seen an increase in chapter 13 filings. People filed chapter 13 bankruptcies in an attempt to salvage their homes and cars. Once stimulus money, paycheck protection plans, and moratoriums on foreclosures and repossessions were passed, there was no reason to file a chapter 7. The fact of the matter is, people only file bankruptcy when they’re at the end of their financial rope. Due to the aids from the COVID-19 response, many of these ropes were extended.
What continues to cause the depression in filings from the beginning of the pandemic?
We’ve seen both creditors and government (federal, state, and local) imposing certain restrictions or moratoria on creditors. That has surely played a factor in how bankruptcy filings have stayed low for so many months.
Another factor is that many creditors have shown a level of sensitivity to individuals and families during these times. They are compassionate to their clients who are trying to pay their debts but are unable to do so due to COVID-related circumstances. If debtors aren’t being pressured by their creditors, then they also aren’t being pressured to file for bankruptcy.
Lastly, a factor that many of us didn’t see coming is the housing market boom. With this unprecedented spike in home values and equity, people are selling and buying very quickly. Throughout the pandemic, people were constantly working on home improvement projects to enhance their homes and saw a rise in market value. Whether refinancing or selling, this was a way for individuals to pay off debt and/or save while waiting for the market to drop.
Where are bankruptcy trends heading?
What can we expect for 2022 and beyond? Timing is everything, but we can predict a few things. Our team anticipates that we won’t be back to pre-pandemic bankruptcy levels by 2023. Depending on the course of the pandemic, bankruptcies will increase slowly, starting in mid to late 2022, with a real increase in 2023-2024. The unknown aspect of the pandemic will undoubtedly affect this prediction.
Below are some factors to keep an eye on in the coming year:
- Inflation
- Supply chain disruptions
- Staffing shortages
- Unemployment and underemployment
- Continued growth in obtaining credit
- The housing market and home values
- Automobile values
- As foreclosure and eviction moratoria continue to fall off, will government assistance be a thing of the past?
- Student loan repayment moratorium and potential legislation
The Weltman Bankruptcy Group understands the intricacies involved in bankruptcy recovery, especially during these difficult times. If you have questions, please connect with Garry, Erin, and/or Scott at any time.
For more comprehensive information and insights, watch The Current State of Bankruptcy Filings and What’s to Come: A Look Ahead to 2022 webinar and/or read our previous blog on this topic, Crystal Ball: Predicting Future Bankruptcy Filing Trends.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
