People often associate bankruptcy with unemployment. Bankruptcy is tied to debt levels, not unemployment rates. Bankruptcy does not add money to a bank account or find an individual a job. Bankruptcy is all about debt and unless people have debt, they won’t file for bankruptcy.

Recently, the Federal Reserve Bank of New York reported that, despite unemployment rates increasing to levels not seen since the Great Depression, household debt levels are going down. Q2 credit card balances fell by the largest amount since data began being collected and the number of new credit accounts being opened also fell by a record amount. Also, consumer spending saw a sharp decline due to the pandemic stay-at-home order and ongoing social distancing requirements.

Some industry researchers believe that Chapter 13 filings, which are often submitted by individuals with stable incomes and good prospects for eventually repaying creditors, will likely decrease in favor of Chapter 7 filings that don’t call for borrowers to repay debts in the coming year.

Unlike some predictions of a tidal wave of filings, others believe that consumer bankruptcy filings don’t happen immediately following a life event such as loss of a job. Research shows that  most people struggle between 2 – 5 years prior to filing for bankruptcy.  As a result, the COVID-19 driven rise in consumer bankruptcy cases likely won’t be seen for months or years to come.  If the economy doesn’t recover and unemployment persists, bankruptcy filings will begin to see a slow and steady increase throughout 2021