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Have COVID-19 Relief Measures Stopped Bankruptcies?

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Bankruptcy filings happen for any number of reasons, from a strategic repositioning for a major corporation to a family’s effort to restructure debt. The practice of bankruptcy law is often seen as a counter-cyclical industry; it potentially thrives when the economy suffers, and vice versa.

Filing Patterns Over Time

Legal analytics can show trends in when and where bankruptcies are filed. Patterns in bankruptcy filings in the wake of the COVID-19 pandemic show that economic relief measures instituted by federal and local governments decreased bankruptcy filings despite economic challenges not seen in a generation.

With data beginning in January 2019, bankruptcy filings of all chapters were at a peak, with over 75,000 cases in March of that year. 63,000 filings were made in March 2020; partway through that month, COVID-19 lockdowns began to seriously impact the United States. 

Just a month later, just under 40,000 cases were filed, in April 2020, or a loss of about 33%. This can be attributed to a variety of factors; potentially impactful stimulus checks were received by many, while offices – including law practices and courthouses – scrambled to reestablish their businesses in line with what was then called “the new normal.” 

The drop in pandemic filings has not abated as lockdown measures eased and stimulus checks stopped coming in the mail. Bankruptcy filings appear to have bottomed out in January 2022, when vaccines were widely available and many relief measures had ended. That month saw just over 27,000 filings, well below the 75,000 peak in March 2019. 

Data also reveals that March of a given year sees the peak bankruptcy filings in that year, potentially due to its proximity to April tax filing deadlines. The March year-to-year comparison indicates an overall, continuing downward trend in bankruptcy filings, having decreased since at least 2019. Despite the economic havoc wreaked by COVID-19, and even more recent pressures such as record inflation, fewer Americans are filing for bankruptcy.

Geographic Patterns

A geographic analysis of bankruptcy filings in 2021 reveals certain geographic trends  While bankruptcies were down overall, cases filed during the first full year of pandemic conditions were the most concentrated in the Deep South, with the Southern District of Alabama and the Western District of Tennessee seeing the greatest number of bankruptcies per capita. 

Delaware, where many corporations are incorporated, also saw many bankruptcies, although the underlying data does not discriminate between corporate and personal bankruptcy filings. 

On the other hand, areas like New England, Texas, the Carolinas and the Dakotas saw relatively few bankruptcies per capita. Time will tell if the geographic distribution of cases persists in 2022, as pandemic conditions – along with relief measures- abate.

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