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2021 could be a record year for bankruptcies

On Behalf of | Jan 12, 2021 | Personal Bankruptcy |

Everyone is happy to put 2020 behind us. But according to Forbes Magazine, the economic downturn of last year will likely continue to be a financial challenge that prompts them to file bankruptcy in 2021. The magazine cited the relatively average number of filings in 2020 as compared to 2019.

Everyone has their reasons for not filing, but its experts cite such factors as the stimulus payments, mandated mortgage and loan forbearance, enhanced unemployment benefits and other COVID-related measures. These difficult economic times may have even prompted folks to save, not overspend or not to borrow. However, if the economic decline continues and folks remain under-employed or out of work, 2021 could see a tidal wave of bankruptcy once the government programs dry up.

Holding onto the house

Another tipping point could be when homeowners are expected to pay their mortgages again – theoretically, the lender could immediately ask for all the missed payments, which could prompt a rash of Chapter 13 filings as families move to spread their payments over three to five years.

Chapter 7 may be the best option if recovery is slow

While those with jobs try to protect their home and restructure their debt with Chapter 13, those who are already unemployed during a slow economic recovery (or continued decline) in 2021 could end up qualifying to file Chapter 7. Those working in retail or the hospitality industry may pursue this, especially if businesses open or reopen at a limited capacity in 2021 – fewer customer means less money for business and employees.

There is no clear path forward

If there is one thing we’ve learned from COVID, it’s that the future is more unclear than ever. Individuals and families will need to make plans for moving forward, whether the economic turnaround is quick or drawn out. As always, the best strategy seems to be hope for the best but plan for the worst.