In early 2020, many of us were certain that the pandemic would result in a dramatic increase in collection activities and consumer and commercial bankruptcy filings.  As we all know, this was not the case.    

According to the Administrative Office of the U.S. Courts, national filings in the calendar year 2021 totaled 413,616, compared with 544,463 cases in 2020, a decrease of 24%.  Business filings fell from 21,655 to 14,347, a decrease of 33.7%.  This national trend was consistent locally, as case filings in the Eastern District of Louisiana fell from 2,137 to 1,490, a decrease of 30%.

Conventional thinking is that the low level of filings can be attributed several factors, such as substantial direct government aid, eviction and foreclosure moratoriums, low interest rates, and limited access to the state and federal courts which resulted in lengthy and stalled proceedings.  Lenders have also played a part, engaging in forbearance agreements with delinquent borrowers to suspend or reduce payments.  The forbearance process allows borrowers to agree to revised and altered repayment terms in an effort to avoid foreclosure by the lender and preclude the need for a potential bankruptcy filing. 

However, federal stimulus has ceased, most of the moratoriums have ended, and the courts are largely open.  Consumer debt has also skyrocketed due to rising interest rates and growing inflation concerns. According to the Federal Reserve’s Consumer Credit Report, debt levels jumped by almost $42 billion in February of 2022 for a total of almost $4.5 trillion. That represents an increase (seasonally adjusted) of 11.3%.  In January of 2022, total credit had grown by only 2.4%. Revolving credit, which includes credit cards, increased by 20.7% in February to almost $1.1 trillion.  Revolving credit had increased only 4% in January. 

Could the latter part of 2022 be a year of reckoning based upon the factors discussed above? Recent bankruptcy statistics indicate that filings are on the rise.  According to Reuters and the legal research firm Epic, the total number of new business and consumer bankruptcies filed in March of 2022 grew 33.5% over February.  Consumer filings increased by 34% and business filings rose by 26%.  These figures build on a slight upward trend that began in February according to Epiq’s data.  Subchapter V small business cases hit record numbers in March.  Epiq said the 81 cases filed the week of Mar. 21 is the highest weekly total ever for that type of bankruptcy.  Once again, the trend was consistent in the Eastern District of Louisiana, with March 2022 case filings rising 30% over the February numbers.           

Although it remains to be seen if these bankruptcy filing trends will continue, the current economic landscape will make it challenging for both consumers and businesses to stay afloat and a continued rise in filings seems likely.    

About the Author...

Fernand L. "Ferdie" Laudumiey
Chaffe McCall, LLP
Bankruptcy & Debtor/Creditor Rights Committee Chair