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Why Haven’t We Seen More Bankruptcies in the COVID Era?

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Business has not been hurt as bad as expected in the last year. And while a lot of people have been hurt bad, the number of personal bankruptcies is way down year to year. The reason is obvious: when the government gives people money, good things happen!

Yes, the number of personal and business bankruptcies filed last year in the country fell by nearly 30% from 2019 despite COVID-19. The decline was largely driven by a roughly 31% fall in personal bankruptcies but also a nearly 5% slide in filings due to business debts, according to U.S. Bankruptcy Court statistics.

There are some obvious reasons that help explain the counterintuitive trend, especially the deluge of cash the U.S. government has pumped into the economy to help keep entire industries and businesses afloat — and put money directly into consumers’ pockets through higher unemployment benefits, as well as stimulus checks showered on even middle-class families, including the $1,400 that landed this month.

Other measures to protect individuals from the pandemic turmoil also have probably lowered the rate of personal bankruptcies, including eviction bans, foreclosure moratoriums and federal student-loan payment freezes — which were extended by the Biden administration but are still set to expire this year.

“Clearly people, mainly through government actions, have not yet felt the pain, and have not had the type of event that would precipitate a bankruptcy. They may not be paying their rent or their mortgage, but they are not being foreclosed on yet,” Flynn said.

And for those debts not subject to any governmental restraint on collections there have been practical considerations, including a pandemic-related backlog in California state courts that have made it challenging for creditors to get judgments, L.A.-area bankruptcy attorneys say.

Why, gee, I wonder if there any policy lessons to be learned here about how just giving people more money would make everyone’s life better?

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