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Here comes the bankruptcy wave

Kimberly Adams May 14, 2020
Heard on: Marketplace
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A temporarily closed J.Crew store in New York. The chain went bankrupt this month. Angela Weiss/AFP via Getty Images
COVID-19

Here comes the bankruptcy wave

Kimberly Adams May 14, 2020
A temporarily closed J.Crew store in New York. The chain went bankrupt this month. Angela Weiss/AFP via Getty Images
HTML EMBED:
COPY

While the federal government hammers out the next round of economic relief, families and businesses are trying to sort out what it will take to get through this crisis.

Some businesses are already turning to bankruptcy to give them time and flexibility to reorganize and reset. Many individuals are probably going to end up doing the same thing.

“We certainly expect that filings will increase depending how long the country is going to be on lockdown, and how long the COVID-19 pandemic lasts,” said Amy Quackenboss, executive director of the American Bankruptcy Institute.

In April, Chapter 11 bankruptcies, which allow businesses to reorganize so they can try to survive, were up 26 percent from last year. That’s just the beginning, said Sara Sternberg Greene, professor at Duke Law.

“We will see some who just decide they can’t survive, and they’ll file Chapter 7, which is liquidation,” she said. 

For now, Chapter 13 consumer bankruptcies are down. People are spending their savings and relief checks, said Ed Boltz, a bankruptcy attorney in North Carolina. In normal times, he said, three main things cause bankruptcies: job loss, illness and divorce. And with the pandemic, “we’ve got two out of the three already hitting. And who knows what staying at home is going to do to relationships and marriages also?” he said. 

But while a bankruptcy can wreck your credit and be a stressful experience, it can also provide an important backstop for the economy, said Matt Notowidigdo, economics professor at Northwestern University.

“One of the things the bankruptcy system does is it allows people to get a fresh start, and then try to resume somewhat back to their old path of spending, and that can help the economy overall,” he said.

Correction (May 14, 2020): An earlier audio version of this story misidentified Notowidigdo’s university. The audio has been corrected.

COVID-19 Economy FAQs

What are the details of President Joe Biden’s coronavirus relief plan?

The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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