How Will the Coronavirus Impact Us Financially?
We already know about the devastating medical consequences of the Coronavirus. We’ve also seen the social consequences as cities and states restrict movement, entertainment, and business operations.
One of the effects we’re just beginning to realize is the economic devastation on small businesses and working-class people. With companies temporarily (hopefully, only temporarily) shuttered and people unable to go to work or laid off due to local restrictions, people and small businesses will be hurting. One outlook suggests that bankruptcy-related litigation could increase. It’s really hard to forecast months ahead with so many daily changes.
That said, the measures in place to “flatten the curve” and reduce the spread of the virus have already exposed financial issues in our economies and in individual households. While some level of financial assistance may be arriving soon, here is what we foresee:
Chapter 7 (liquidation-type bankruptcy for both consumers and businesses):
We predict a significant increase in Chapter 7 filings caused by sustained layoffs, medical costs of treating the Coronavirus and other illnesses, and the need to eliminate liabilities for personally guaranteed debts for businesses affected by the virus.
Chapter 13 (reorganization-type bankruptcy for consumers only):
Existing Chapter 13 clients can seek relief in the form of skipped payments, but may need to consider re-filing cases if the long-term outlook is bleak and they cannot afford their existing plan payments when we are back to pre-Coronavirus freedoms.
People who experienced short term pain but haven’t lost their jobs permanently might turn to Chapter 13 to address unpaid income taxes, student loans, domestic support obligations, mortgages, and car loan payments and get back on track financially.
Chapter 12 (reorganization-type bankruptcy for farmers and fishermen only):
Chapter 11 (reorganization-type bankruptcy for businesses and individuals with very high debt):
Chapter 11 could be an avenue for small businesses (and a few individuals, as well) looking to restructure. However, businesses that survive the Virus and its ripple effects would be wise to seek help in negotiating with their largest creditors before jumping to a bankruptcy filing. Banks may be willing to afford forbearance agreements and other plans to stave off bankruptcy filings.
One way or another, bankruptcy filings will probably increase for the first time in about a decade.
If you are currently in a bankruptcy or contemplating bankruptcy for financial relief, please give us a call to discuss whether now is the right time to proceed and how we can best assist you or your small business. We’re in this together and here to help.