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Personal bankruptcies went down in 2020. Here’s why they could surge this year

On Behalf of | Mar 3, 2021 | Bankruptcy

With all the economic problems workers and families in the Orlando area experienced in 2020, it may surprise you to learn that Chapter 7 and Chapter 13 bankruptcy filings did not go up. In fact, in the final quarter of last year, the U.S. experienced an historic low number of filings.

Few new bankruptcies as debt kept growing

According to The Motley Fool, the Federal Reserve Bank of New York reported that around 121,000 people had a bankruptcy filing added to the credit reports in the last three months of 2020. This was a decline from the third quarter even though the total household debt balance grew by more than 1 percent, or $206 billion, during the fourth quarter. Meanwhile, unemployment remained high, as it has been since March 2020.

This would sound like a perfect recipe for a huge number of bankruptcy filings. But actions by Congress, including moratoriums on foreclosures and evictions, extra unemployment payments and stimulus payments, helped protect people in trouble. In addition, credit card companies tended to be flexible with customers. In many cases, they agreed to suspend minimum payment requirements, reduce interest rates or otherwise help families avoid falling behind and risking collection actions.

Government help won’t last forever

But these much-needed forms of assistance will not last forever. As American society begins to open up again and more jobs become available, federal assistance will go away. Credit card companies and banks will start demanding payment again, whether or not their customers are earning a steady income again.

As things get closer to normal, we would not be surprised if hundreds of thousands of families who were able to keep things together financially in 2020 will find themselves unable to continue without help. Chapter 7 or Chapter 13 bankruptcy could be the help they need. A bankruptcy attorney can help you decide how to proceed.

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