World Record Bankruptcies Ahead? Maybe Not

A professor at NYU who developed a renowned model for predicting business failures has issued a report that says that while annual bankruptcies may increase over the next 12 months, they are not likely to match the 1.5 Million cases that were filed after the Great Recession.

Economists at Fed Banks in Missouri and Virginia echo the sentiment.

The American Bankruptcy Institute has chimed in on all this, and they too refrain from issuing bleak prognostications.

Yet, Iowa was already experiencing the largest state increase in filings before Coronavirus because of the trade war with China. Texas was also hit hard as the fossil fuel industry has taken a beating.

The Southern U.S.  has more petitions than anywhere else, with states like Georgia showing that over 5 out of every 1000 people filed for bankruptcy in the first quarter of 2020.

In the last 20 years, there have been two cycles where bankruptcy filings went through the roof.  In 2005, the American public assumed that recourse to bankruptcy was coming to an end, as Congress revamped the bankruptcy code and the message on the street was “if you have been thinking about filing, better do it now. Hundreds of thousands of people lined up, literally on the courthouse steps, to file cases.

And of course, the Great Recession was a boon to the financial distress management industry.

Now, we have unemployment rivaling the Depression, and one of the highest proportionate numbers of medically uninsured in history. This would suggest bankruptcy lawyers will be more popular than free Hamilton tickets.  But the question that remains to be answered is whether people and businesses will file bankruptcy if they have no money to pay for it and have no foreseeable income stream to help get them back on their feet.

You can