“Spike” in Consumer Bankruptcy Filings May Occur Soon

During the COVID-19 pandemic, consumer bankruptcy filings have remained relatively low, and surprisingly low based on some expectations voiced by commentators. Yet many bankruptcy law experts and consumer protection advocates have worried that consumer bankruptcy filings would rise once the pandemic began to cease, unemployment benefits stopped coming, and Americans who lost their jobs were unable to find suitable or equal employment to the work they had been doing prior to the pandemic. It is possible that such a “spike” in consumer bankruptcy filings may soon occur, according to a recent article in Bloomberg Law, yet the article cites the end of the COVID-19 eviction ban as the likely reason for a rise in personal bankruptcies.

Unpaid Rent May Lead to Bankruptcy Filings

As the article argues, “an unprecedented amount of unpaid rent is making bankruptcy a more attractive option for millions of Americans grappling with paying their landlords as COVID-19 relief measures come to an end.” Why is it possible that unpaid rent, and the end of the eviction moratorium, will be what leads to the previously expected spike in consumer bankruptcy cases? Generally speaking, consumer bankruptcy does not allow tenants to avoid being evicted from their homes in the same way that a Chapter 13 bankruptcy can allow a homeowner to avoid foreclosure and remain in the property. However, filing for consumer bankruptcy may be able to “slow an eviction,” according to the article, in cases where tenants are “prepared to relinquish their leases.”

Accordingly, if a tenant files for bankruptcy and owes unpaid rent, that tenant may be able to remain in the property for a little bit more time than if she or he did not file for bankruptcy. In other words, consumer bankruptcy cannot stop an eviction from a rental property, but it may allow a tenant to remain in the property for a slightly longer amount of time. Given that the eviction moratorium will expire on June 30, and that “nearly 7 million Americans report being behind on rent as of late April,” it is looking more likely that bankruptcy courts could begin to see a wave of filings. Of those 7 million who owe unpaid rent from previous months, about 5 million say they “lacked confidence they could cover upcoming payments” as well.

Shift in Reasons for Consumer Bankruptcy

If personal bankruptcy filings do rise due to the end of the federal eviction moratorium, that fact will result in a shift for general bankruptcy filings. Indeed, as the article points out, owing rent or trying to slow down an inevitable eviction were not previously among reasons people often cited for filing for consumer bankruptcy. Yet as the eviction moratorium comes to a close, some advocates expect to see a “sea change” in the motivations for consumer bankruptcy filings.

And most of these bankruptcy filings are likely to be Chapter 7 filings. While Chapter 13 bankruptcy, like we mentioned above, can be useful for avoiding foreclosure and getting back on track with mortgage payments, Chapter 13 is not likely to have the same effect for renters who want to stay in their homes and get caught up on past due rent.

Contact a Bankruptcy Lawyer in Oak Park

If you have questions about how bankruptcy may be able to benefit you, or if you need assistance filing for consumer bankruptcy, our Oak Park bankruptcy attorneys can speak with you today. Contact the Emerson Law Firm for more information.



See Related Blog Posts:

What is a Chapter 13 Cramdown?

Bankruptcy and the First-Time Homebuyer Tax Credit: What You Should Know




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