Many of us who monitor the economy for signs of repayment distress were certain in early 2020 that the pandemic would result in a dramatic increase in consumer and commercial collections and bankruptcy filings. Some bankruptcy firms even hired additional lawyers in anticipation of the expected wave that has not yet materialized.
Instead, we experienced the complete opposite. From 2020 to 2021 (based on fiscal years running from 10/1 to 9/30), business bankruptcy filings dropped by 27.9%. Non-business filings dropped a whopping 29.1% from 2020 to 2021. Total filings are down 44% since 2019.
Mainstream thinking has credited abundant government stimulus money, coupled with mandates for creditors to hold off on evictions, foreclosures, and litigation, for the apparent improvement in both business and consumer finances. Now that certain collection moratoria have ended and government stimulus money has dried up, will we see the bottom drop out?
Consider two recent data points from the American Bankruptcy Institute. According to Census Bureau data and articles from the Wall Street Journal and Moody’s, the pandemic has resulted in many families attaining new financial stability. The first two rounds of government stimulus lifted 11.7 million Americans out of poverty. Americans added $2.7 trillion to their savings during this time.
But perhaps signaling a swing in the pendulum, the American Bankruptcy Institute also reports that consumer debt skyrocketed to its highest level ever in November 2021. According to data from the Federal Reserve, Bloomberg News, and Bloomberg Economics, consumer debt alone increased by $40 billion in November–$19.8 billion in revolving credit, such as credit cards, and another $20.2 billion in non-revolving credit, including auto and student loans. Adding another complication, inflation almost certainly impacted consumers’ rising need for credit.
While we hope that 2022 finally brings more normalcy to everyday life, we will be watching to see which of these increases will more significantly affect the world of collections and bankruptcies—the increase in savings or the increase in debt. The attorneys at Dalton & Tomich are ready to use their vast experience collecting receivables and representing creditors in bankruptcy to help your business through this turbulent time. Contact us today at 313.859.6000.
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