Are bankruptcies going to increase post COVID-19 pandemic?

Predicting the economic future is always a tough task and in the aftermath of a pandemic, it’s almost impossibility. One thing’s for sure, the world will be hurtling towards a prolonged recession and bankruptcies are surely going to increase in the absence of adequate Govt. stimulus and tax cuts. The only question is what be the shape of the upward spiral? Will it be a steep rise or will the increase be in a phased manner?

The filings for bankruptcies under Long Island bankruptcy law won’t be evident in the immediate aftermath of the pandemic. There is already a foreclosure moratorium on all federally backed mortgages, which are two-thirds to three-quarters of all mortgages. Collections of student loans have hit the pause button. There is support across the political spectrum for state moratoriums on debt collections and rent evictions. All these initiatives will collectively reduce the immediate pressure on people to declare bankruptcy. Moreover, most people will look to weather the initial storm in the expectation of bigger government support.

The real problem will start manifesting only after a few months when the actual economic impact will trickle down across all strata of the society. There is a difference between being financially distressed and filing for bankruptcy. Once the economy is on a road to recovery, the filings for bankruptcy will start trickling in after people have carefully weighed out all possible options of mitigating the onslaught of the pandemic. Surprisingly, recession has not always been associated with filing of bankruptcy. The largest surge for bankruptcies was recorded in the 1990s when the economy was in a boom. Bankruptcy filing by Long Island bankruptcy lawyers, was at its lowest ebb in the United States just before the virus stuck.

The current situation is simply without precedence. The financial devastation of the Great Depression unfolded over many years. The closest precedent is the Spanish flu pandemic of 1918, but the consumer credit system didn’t exist then like it does today. It is only to wait out for the situation to unfold before New York Bankruptcy lawyers can give out an exact estimate of the unfolding situation.