Bankruptcy filings are down slightly this year. I suspect many people slowed down their spending, due to the COVID epidemic and restrictions. Americans reportedly are saving at a higher rate than ever. On the other hand, all that cash is burning a hole in some people’s pockets. New and used car sales are at an all-time high. The word on the street is people are buying houses more frequently than would be expected this time of year.
The prediction for 2021 is quite different. Foreclosures – both residential and commercial – are expected to mushroom. Eviction restrictions made it harder for landlords to collect rent and maintain properties. Should the limitations continue, it is predicted there will be a bonanza of defaults on the commercial real estate side. Many rental properties are held by small investors who cannot shoulder losses that go on for more than a few months.
There are a lot of reasons for what seems like a paradox between higher unemployment rates and more consumer spending. The biggest reason may be federal subsidies keeping many businesses and individuals afloat. It is unclear whether or not these will continue into the next year.
Certain sectors of the economy have taken a harder hit than others. Restaurants, hotels, and leisure businesses are particularly affected. With restaurants operating at 50% capacity, takeouts and federal subsidies are the only things that have saved the day. With most people afraid or unable to travel, the hotel sector is not quite so lucky.
While I believe next year will be better in most ways, I still think there is a high chance economic prospects will be somewhat rocky. Even the federal government cannot indefinitely hand out stimulus money. Now may be a good time to take inventory and decide whether or not bankruptcy could benefit you.
Those having a rough ride, as well as people who had overtime cut, may now qualify for a Chapter 7 discharge—where they would not have been able to do so, a year ago. With Chapter 7, you can get a complete forgiveness of unsecured debt without any payment plans or without being in bankruptcy long-term. There are income restrictions on eligibility. The time to consider a Chapter 7 is often after income dips, but before it recovers.
Chapter 13 bankruptcy is better for people who have fallen behind on a house or vehicle and are struggling to keep it. There are no income caps or limits. Chapter 13 allows secured debt to be prioritized and paid first and a significant portion of the unsecured debt to often be forgiven. It is a form of reorganization and repayment.
I hope 2021 will find you prosperous; however, should you need help with debt forgiveness or reorganization, please call our office to discuss your options.
Written by Greg Gouner
