Personal bankruptcy rate will increase after the expiration of the CARES Act provisions
The due date is fast approaching for Nevadans who have racked up thousands of dollars in missed rents and other debts.
For many, easing the financial burden means going bankrupt, and experts predict a tsunami of deposits after the New Year, when the remaining relief from the $ 2,000 billion March federal stimulus package known as the CARES Act. will expire.
An influx of bankruptcies normally matches a rising unemployment rate, and a coronavirus-fueled recession and growing number of unemployed would result in more filings. But in an unexpected twist, the number of people filing for personal bankruptcy like Chapter 7 and 13 has declined significantly since mid-March, according to a September Harvard Business School study.
Las Vegas attorney Rory Vohwinkel typically receives up to 10 new Chapter 13 bankruptcy cases each month, but it has been quiet.
“We haven’t seen any in our office in the past two or three months,” said Vohwinkel, whose eponymous law firm deals with bankruptcies and foreclosures.
The calm before the storm
During the Great Recession, Nevada recorded the highest unemployment rate in the country each year from 2010 to 2012, peaking in 2010 with an unemployment rate of 14.9%. It was also the year Nevada reported the highest number of personal bankruptcy filings between 2000 and 2019, with a total of Chapter 7 and Chapter 13 filings reaching 29,678.
For this year through September 30, consumer bankruptcies in Nevada declined 22% year-over-year with Chapter 7 and 13 filings at 5,115 and 682, respectively, according to the American Bankruptcy Institute .
Sullivan Hill managing attorney Elizabeth Stephens said the CARES Act is the reason consumer bankruptcies are on the decline, including in Las Vegas.
“(This) injected $ 2.2 trillion into the economy,” she said, adding that she expects to see “a torrent of bankruptcy filings” after the protections of the CARES law , such as additional unemployment benefits and other federal provisions such as the federal moratorium on evictions, expire on December 31.
Stephens also pointed to an increase in Chapter 11 business bankruptcies as a key indicator of what’s to come for consumer filings.
“In general, business bankruptcies precede consumer bankruptcies,” she said.
ABI reported last month that Chapter 11 filings grew 33% nationwide in the first nine months of this year to 5,529 from the same period in 2019.
The Federal Reserve Bank of San Francisco also released a study last month saying, “Chapter 11 bankruptcy filings are proceeding at their fastest pace since 2013. The number of companies that have defaulted on their debt until now this year has passed the total for all of 2019 and is on track to be the highest since 2009. ”
7 against 13
Andrea Gandara, bankrupt lawyer at Holley Driggs, looks to the future.
“I think at the end of the year and early next year we will see a significant increase in bankruptcy filings, mainly due to unpaid rents and unpaid mortgages since the spring and coming due ( after December 31), ”she said. , referring to the moratoriums on evictions for non-payment of rent currently in force.
Vohwinkel, of Vohwinkel Law, said bankruptcy courts continued to catch up as they essentially closed with the state in mid-March.
“Meanwhile, none of the creditors took legal action against debtors, so there was no garnishee wages being processed and many people were losing their jobs – they had no jobs to grab. “, did he declare. .
Vohwinkel said he generally does not see customers until they are about to be evicted or their homes are foreclosed. He also noted that most consumers begin to consider bankruptcy when they are served with legal action by a creditor.
Consumers can file Chapter 7 or Chapter 13, depending on their income and debt. Stephens, of Sullivan Hill, said lawyers usually offer free consultations, but the process costs several thousand dollars due to filing and attorney fees. It can also hurt a filer’s credit history, as bankruptcy will show up for 10 years on a credit report.
Chapter 7 is considered a “new bankruptcy” because it clears the filer’s debt, but applicants must qualify by earning less than the median income, according to Vohwinkel.
He said Chapter 13 deposits are for those who may be behind on their payments but want to keep their assets, like a house. A filer’s missed payments would be spread over a three to five year repayment plan. He noted that it is also useful for those with IRS debt.
While the number of bankrupt clients is relatively low, Vohwinkel said it is likely to change next year and even in 2022.
“I expect there will be numbers similar to 2008 and 2009,” he said.
Nevada’s economy was booming before the spread of the coronavirus disrupted lives. The state’s unemployment rate was 3.9% in January, the Nevada State Department of Employment, Training and Rehabilitation reported. It was the lowest rate from 1976.
In 2019, direct visitor spending in southern Nevada peaked at $ 36.9 billion since 2010, and it accounted for nearly a third of the region’s gross economic output of $ 122.4 billion. , according to an April report from the Las Vegas Convention and Visitors Authority.
That all changed after March 17, when Governor Steve Sisolak ordered the temporary shutdown of casinos and non-essential businesses, throwing thousands of workers into the state’s unemployment insurance system.
Independent contractors and self-employed workers were able to receive unemployment benefits for the first time under a provision of the CARES Act, which also provided for an additional weekly payment of $ 600 for unemployment insurance. It also included temporary residential eviction bans, a hiatus for consumers having to pay off their student loans until December 31, and several federal loan programs.
The measures were needed in a state heavily dependent on tourism, an industry particularly hard hit as out-of-state visitors were encouraged to stay at home.
“The spread of COVID-19 has brought the Nevada economy to a virtual standstill, significantly affecting business activity and the labor market,” said economist John Restrepo of RCG Economics. “This is exactly the kind of situation that requires a large-scale response from the federal government.”
Nevada has largely reopened since March, but at least 209,052 residents are unemployed and receiving unemployment benefits as of October 31.
The Nevada employment office announced last month that the seasonally adjusted unemployment rate for September was 12.6%, down from 13.3% in August, but up 8.9 percentage points year over year.
Restrepo said a spike in bankruptcies would drag the economy further.
“The economic implications for Nevada… would be a prolonged economic recovery for the state – think of the Great Recession,” Restrepo said.
Contact Subrina Hudson at firstname.lastname@example.org or 702-383-0340. To pursue @SubrinaH on Twitter.