While moratoriums on utility cutoffs and foreclosures and other economic assistance have helped keep consumer bankruptcy filings low during the pandemic, a wave of bankruptcies is coming, lawyers say.
Data from federal bankruptcy courts shows that in Wisconsin, consumer bankruptcy filings through August were 28% below the same time in 2019.
But that is the calm before the storm – a calm stemming from state and federal initiatives meant to keep people solvent and in their homes while COVID-19 is spreading. For instance, the state’s Public Service Commission this month extended a moratorium on electric and gas disconnections until Nov. 1, when the state’s seasonal prohibition on utility cutoffs kicks in, essentially extending the pause in payments until April 15.
After that, bankruptcy attorneys say, be prepared for a big jump in bankruptcy filings.
“As of this month, there’s 56,000 people in the state that are behind on their utility bills,” said James Miller, of the firm Miller & Miller in Milwaukee. “Come April 15 of 2021 there is going to be a landslide of bankruptcy filings, unless We Energies comes up with something and starts forgiving balances.”
Miller said consumers destined for financial trouble are holding off declaring themselves insolvent as long as they can. Moratoriums that have stalled regular major household expenses, along with aid such as stimulus checks from the federal government and an extra $600 in unemployment income, have kept consumers’ heads above water, if only temporarily.
Claire Ann Richman, an attorney with Steinhilber Swanson LLP in Madison, said that right now, many consumers don’t feel pressure to file for bankruptcy protection from creditors. In addition, she said, the court system can’t function at its normal pace while social distancing is in effect.
“All of the reasons that force somebody to file bankruptcy are being slow-played,” she said.
She predicted that as early as six months from now or perhaps the middle of 2021, a big increase in bankruptcy filings will begin in the state as assistance wanes and permanent business closures from the pandemic will leave fewer jobs.
Some pandemic-inducted bankruptcies already are happening, especially among business operators, she said.
“We have a dry cleaner, restaurant owners, agricultural suppliers who distribute fertilizer and ag products and they couldn’t go out and do their sales this spring, and karate schools – things like that,” Richman said. “Those people are shutting down.”
Attorneys said even though bankruptcy filings are markedly down from last year at this point, lawyers are busy as they work with clients and advise them to hold off filing as long as they can in the hope that the economy and their personal situations improve.
Through August, there were 8,272 consumer bankruptcy filings – Chapter 7 and Chapter 13 – in Wisconsin, or 28% fewer than through August of 2019, according to American Bankruptcy Institute data. Nationally, consumer filings were down 27%.
Bankruptcy Court records show that in Wisconsin through August, there were 13 Chapter 11 business reorganization filings in the Eastern District of the state, compared with 14 at the same time a year ago. In the Western District, Chapter 11 filings through August were at 13, the same number filed in all of 2019 in the district.
In an August report, the head of the American Bankruptcy Institute said a number of key factors continued to keep bankruptcy filings from overwhelming the court system in the U.S.
“The CARES Act helped businesses and consumers initially weather the economic shock of the pandemic,” said ABI Executive Director Amy Quakenboss.
She noted that collection, eviction, and foreclosure activity was largely suspended, and quarantining measures presented challenges for struggling debtors to meet with attorneys.
“However, with the expiration of government stabilization programs, elevated unemployment levels, and growing economic uncertainty, we anticipate a dramatic climb in filings later this year,” said Quackenboss, who also holds a law degree.
Miller said an increase in bankruptcy filings in Wisconsin is an inevitable result of the pandemic’s blow to business and jobs.
“I think we’re really going to see the spike in filings in 2021,” he said.
Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at firstname.lastname@example.org