COVID-19 has affected almost every industry in the United States economy. Stay-at-home orders slowed or halted normal business operations and many business owners had to pivot to continue to run their companies. Unemployment hit historic levels and that appeared to be just the beginning. Commercial bankruptcy filings in 2020 were higher than they were during the same period in 2019; however, the long-term effects of COVID-19 on personal and commercial bankruptcies have yet to be fully realized.
How Has the Pandemic Affected Personal Bankruptcy Filings?
The start of the pandemic saw a decline in personal bankruptcy filings across many states as courts had to close. Additionally, financial relief programs such as the coronavirus relief bill and the Paycheck Protection Program helped offset temporary business losses. However, this does not dictate that we will see a decline in bankruptcies moving forward. Bankruptcies tend to happen after a decline in economic health as the financial impacts linger later. Some financial experts are predicting an increase in bankruptcy filings.
COVID-19 Economic Relief Bill for Small Businesses
Small businesses were able to see some relief during this period; however, some are still scraping by. Signed into law on Dec. 27, 2021, the $900 billion COVID-relief and $1.4 trillion government funding packages were both passed by Congress, providing critical pandemic aid to Americans.
While no additional state and local aid was provided, an extension of the deadline by which the Coronavirus Aid, Relief, and Economic Security (CARES) Act Coronavirus Relief Fund (CRF) resources must be spent was extended to Dec. 31, 2021.
Small businesses were granted the following relief:
- $325 billion in small business funds.
- $284.5 billion for first and second forgivable Paycheck Protection Program (PPP) loans.
- Second PPP loan eligibility for businesses that have less than 300 employees that can demonstrate a revenue reduction of 25%.
- Maximum loan amount reduced to $2 million.
- $20 billion for new Economic Injury Disaster Loan Grants for businesses in low-income communities.
- $15 billion in funding for live venues, independent movie theaters, and cultural institutions.
- $3.5 billion for continued Small Business Administration debt relief payments.
- $2 billion for enhancements to Small Business Administration lending.
- Businesses that received PPP loans would be able to take tax deductions for the expenses covered by forgiven loans.
- Expands PPP eligibility for 501 (C)(6) nonprofits, including local newspapers, radio stations, television broadcasters, and more.
- Provides $12 billion for Community Development Financial Institutions and Minority Depository Institutions that provide credit and financial services to low-income and minority communities.
COVID-19’s Impact on Commercial Bankruptcies
Commercial bankruptcies are also likely to increase due to economic hardship and less consumer demand for certain services. Businesses that are not deemed essential have struggled during this time due to stay-at-home orders and closures. Restaurants and gyms for example have been forced to close multiple times losing revenue.
For some companies, Chapter 11 bankruptcy was a welcome option to restructure or get rid of debt. These filings tend to increase during times of economic turmoil, so financial experts have predicted an uptick of filings.
Considering Filing for Bankruptcy? Let Our Firm Guide You.
If you suffered financially due to the pandemic, you are not alone. Many businesses were eligible to receive government funds to help them stay afloat during this time. If you are still currently struggling and debt settlement and/or government loans did not offer much financial assistance, bankruptcy could be a viable option.