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
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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