Why are Bankruptcy Filings Down?

Author: Andrew M. Thaler

​          I am on the Chapter 11 Advisory Committee for the Bankruptcy Court for the Eastern District of New York, a committee comprised of Bankruptcy Judges in the District and experienced bankruptcy practitioners. At a recent meeting there was a discussion of bankruptcy filings in the Eastern District and National trends.  Despite the fact that many individuals and businesses are in financial distress, it has been somewhat counterintuitive to my non-bankruptcy lawyer colleagues, friends and acquaintances to comprehend that bankruptcy has been on the decline and that business for bankruptcy lawyers has been extremely slow.

​          In 2020, total chapter 7 and 11 cases nationally for the 12 months ended June 30, 2021 was the lowest since 1985. In 2020 total filings were 544,463 which is about 230,000 fewer than in 2018 or 2019. The reason for fewer bankruptcy cases is thought to be attributable to (i) the strength of capital markets; (ii) easy access to financing; (iii) under the radar layoffs and other cost cutting measures by employers that were not possible in earlier environments; (iv) collection agency restrictions on the type of debts that could be collected; (v) a generally more flexible approach by lenders with debtors; (vi) financial institutions scaled down vehicle repossessions; (vii) court closings (viii) moratoriums on foreclosures, litigation and evictions; and (ix) inability to obtain and execute on judgments. Enhanced unemployment benefits, access to PPP, CARES ACT Stimulus payments, and Economic Disaster Loans (EIDL) also contributed to the decline in cases filed.

​          Consumer Chapter 7 cases in the Eastern District of New York Central Islip Division, which covers Nassau and Suffolk Counties, are down significantly in 2021 as shown below. Total filings of all chapters in Central Islip are down to 1879 cases as of October 31, 2021 as compared to 3731 cases for the entire 2020 year. More Sub Chapter V reorganization cases, (a streamlined chapter 11 case which went into effect in early 2020 just before the pandemic) are being filed in the District. For those with student loans, the U.S Department of Education issued its final extension of the student loan pause until January 21, 2022. That pause includes suspension of loan payments, stopped collection on defaulted loans and implemented a 0% interest rate. As of this article the bankruptcy community is waiting for when overall bankruptcy filings will increase. Once the dynamics that gave rise the decline are no longer in place, increased filings are expected in all chapters.
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​          ​Below are figures that illustrate the decline in bankruptcy filings in the Central Islip Division. The information was obtained from statistics maintained by the bankruptcy court.

                             2021(to10/31)         2020            2019
Chapter7            1578                      2642            4330
Chapter13          280                        1028            4249
Chapter11          21                           61                110