American Businesses and Individuals Are Facing Unsurmountable Debt as a Result of COVID-19
With no end to the virus in sight and personal emergency savings funds running low, an onslaught of bankruptcies is looming in the distance for millions of Americans. While current filings are lower than this time last year, experts predict the worst is yet to come, with many suggesting that the wave is going to hit early this coming year.
Bankruptcies have historically increased alongside unemployment rates and missed mortgage payments. With the coronavirus leading to a significant rise in both of these, it’s a safe bet to presume a spike is near.
The governmental assistance protecting Americans from immediate filings is unlikely to be enough to overpower the impact of lost sources of income. And once stimulus checks, loan or mortgage leniency, and other protection programs cease, unemployed Americans will be left with few options to repay debt.
Effects on Corporations
New York University’s professor of finance, Max L. Heine, and creator of the Z score, Edward I. Altman, predicted that this year will set records for bankruptcies. Altman presumes that big businesses will be especially hard hit – as J. Crew and Hertz have already demonstrated – and expects these filings alone to surpass the record set following the 2008 financial crisis.
By the end of 2020’s first quarter, American companies had contracted the most debt since the Federal Reserve Bank began recording statistics at the end of World War II, with a whopping nearly $10.5 trillion.
With more companies filing for Chapter 11 bankruptcy, the system will be saturated and experience further difficulty providing sufficient relief to salvage companies. Experts suggest allowing businesses more time to construct repayment plans and recruiting more clerks to account for the number of businesses filing to allow them the best chance to restructure and bounce back stronger. Without any modifications to the process, many companies will likely be forced to liquidate and close.
Effects on Individuals
Even the savviest savers and financial planners could face bankruptcy given the unprecedented disaster 2020 has presented.
The uneven distribution of wealth throughout the country is a contributing factor to the oncoming bankruptcies. Americans on the bottom half of national earnings had more than twice their income in debt before the pandemic. Now, this same group is facing the toughest repercussions from the virus.
Of all households earning less than $40,000, 40% lost at least one job before May. This is twice the percentage of affected families compared to those earning between $40,000 and $100,000. Only 13% of families earning more than $100,000 saw job loss.
Essentially, those least suited to sustain such economic hardship for as long as the United States has been, and continues to be, shut down are the ones facing the toughest realities. Many Americans have turned to credit cards to continue putting food on the table, only growing their debt with no way to repay it.
Effects on Homeowners
Mortgage delinquency is already the highest it has been in nearly a decade, and the Federal Reserve Bank of New York reported that household debt reached a record high of $14.3 trillion in the first quarter of 2020.
Homeowners with Enterprise-backed mortgages received temporary protection in August, when foreclosure moratoriums were meant to expire on the last of the month. At the last minute, the Federal Housing Finance Agency announced that the moratorium would be extended through the end of the year, effectively saving more than 28 million Americans from potential homelessness amidst the pandemic.
The moratorium protects single-family mortgage homeowners who purchased property from the Enterprises Fannie Mae and Freddie Mac through deed-in-lieu of foreclosure and foreclosure dealings. Those with Enterprise-backed mortgages are eligible for foreclosure moratoriums. Enterprise-owned properties are eligible for eviction moratorium.
These homeowners will become susceptible to foreclosure once more in 2021, while Americans who borrowed from other lenders have been vulnerable to the grim realities of financial despair without such extensions.
Coming Back Stronger in 2021
The coronavirus has affected people worldwide, causing health concerns and wreaking financial hardships at record rates. The world lacks immunity from the virus and from the monetary effects it incurs, leading to the question: How will those ridden with debt recover?
Luckily, just as nationwide lockdowns won’t last forever, neither will financial hardships. Our attorneys are dedicated to helping our fellow Americans overcome the financial burdens they’ve endured. Through our dedicated approach, we can protect you from the immediate pains preceding your filing and help you through the entire process. Our bankruptcy lawyers can shield you from aggressive creditors seeking repayment and work with you to stop foreclosure and wage garnishments, discharge your debts, and rebuild your finances.
You don’t need to go through this alone. Call us for a free consultation and let’s start working towards a solution catered to your specific case together.
If you are considering bankruptcy, call the Financial Relief Law Center, APC for professional assistance to recover from COVID-19 related hardships: (949) 284-0715 or contact us via our online message form.