Bankruptcy Statistics Show a Surprising Trend in Early 2022

With the global pandemic, shutdowns, lockdowns, layoffs, and reduced working hours, many expected a drastic increase in the number of bankruptcy filings in the latter half of 2020 and throughout 2021. Many people were wrong, it turned out — bankruptcy filings actually decreased significantly in both years. Of course, there were a number of pandemic relief programs and stimulus checks, including eviction protection, mortgage and student loan forbearance, and extra unemployment benefits, that likely blunted the effect of the pandemic on the most vulnerable members of society. Given that most of these programs have since lapsed, and life has mostly returned to normal, how are bankruptcy statistics trending now? And where might we expect them to head later this year?

Bankruptcies Continue a Downward Trend Through Early 2022

For the year ending December 31, 2020, according to statistics compiled by the American Bankruptcy Institute, consumer and business bankruptcy filings combined slipped 30% year over year. That’s actually remarkable, considering how dramatically most of the world was impacted by the pandemic that year. Of course, economic downturns can take time to really hit home and to push people into the level of desperation needed to require a bankruptcy filing. Plus, there were court closures and shutdowns. So how did 2021 look? Another 24% decrease year over year — meaning there were even less filings in 2021 than 2020, which was a slower year for bankruptcy courts than the last pre-pandemic year of 2019.

Of course, all of that is history. How is 2022 shaping up? The most recent statistics available are for March 2022, which shows a year to date decrease of an additional 17% year-over-year. That’s almost bewildering and continues the sharp decline in bankruptcy filings that we have seen for the last couple of years despite most relief programs wrapping up.

What does the rest of the year have in store? Predictions are a difficult game to play, but we have many signs of a troubling economy currently — record inflation numbers, a rapidly dying housing market, and the federal government consistently jacking up interest rates to try to curb the inflation causing the offer mentioned housing market issues. Further, as interest rates go up, companies tend to borrow less and hire less — no cheap money to borrow means less growth. Not a day goes by where you don’t see headlines about some major company putting on a hiring freeze, or worse — laying off employees. That’s not to mention the crypto currency crisis, where the value of every major crypto currency seems to be plummeting and even larger tech companies that have staked part of their value on crypto currency, like Tesla, are dumping that asset at major losses.

An Economic Reckoning May Be Coming Soon

All of those are signs that the economy is finally headed for a reckoning. The last few years, the US government has printed money and handed out relief programs at the expense of the value of the dollar, which is currently facing inflationary forces it hasn’t seen since the late 1970s. By the time they got the dollar stabilized in the 1980s, interest rates were in the twentysomething percents — which indicates we have a lot more fat to trim and a lot more damage to the economy to come before we are out of this mess today. Either that, or they let inflation run amok and everyone’s salary simply buys less.

In other words, if one were to make a prediction about where bankruptcies are headed, the economy is probably going to do very poorly over the next year or two, which makes it far more likely there will be mass layoffs and more economic crises for lower income individuals, meaning more bankruptcy filings.

Bad Economies Impact Everyone

When you think of bankruptcies, you probably think of cash-strapped lower income individuals desperate to escape credit card debt. However, bankruptcies affect people across all demographics.

According to statistics compiled by LegalJobs, 20% of bankruptcy filers have a college degree, 29% have at least some college education, and 36% are high school graduates. However, as you might expect, 60% of people who do file earn less than $30,000 per year while only 9.2% of people who earn at least $60,000 per year go bankrupt. Married couples, despite potentially having dual incomes, account for 64% of filings compared to 15% of those who are already divorced and 20% of those who are single or widowed.

There is No Shame in Struggling to Get Your Financial Life Back on Track

There’s an important lesson I try to teach my daughter every day — there is no shame in trying and failing. There is shame in not trying at all. And while bankruptcies impact people across the economic spectrum, the bulk of filings do come from lower income individuals. These people work harder, for longer hours, for less money that has to be stretched farther – making ends meet sometimes comes up short, but they keep trying.

If you’re struggling to make ends meet, and bankruptcy seems like your only way to get a clean slate and get your financial life back on track, know that there is no shame in coming up with a plan and pursuing it. Discussing your options with a bankruptcy attorney will help you weigh the pros and cons of filing bankruptcy, as well as any alternatives. And if you do have to file, know that you are absolutely not alone — even with the recent decreases in rates of filing, millions of people have filed for bankruptcy over the past few years and millions more will file in the coming years. Bankruptcy is not shameful, it is not giving up, but it is simply coming up with a new plan to get your financial life back on track.