ABA’s Business Law Today: Bankruptcy Filings During the COVID-19 Recession: A Tale of Two Debtors?
The article presents the pattern of bankruptcy filings during and after the COVID-19 recession. Echoing some recent commentary and economic analysis, we show that bankruptcy filings behaved markedly differently than historical patterns would dictate. We break down bankruptcy petitions between Chapter 7 (essentially a liquidation) and Chapter 11 (usually a restructuring of debt), and between those of businesses vis-à-vis consumers. Doing so allows us to show that Chapter 7 filings dropped at the start of the recession, something not observed for Chapter 11 filings. The article then explains the possible causes behind the observed pattern. They include (1) the effects of COVID-19 induced public policy; (2) the functioning of the courts during the pandemic; (3) the absence of liquidity; and (4) the existence of uncertainty.
