November bankruptcies hit 14-year low with steep drop in personal filings

One factor for the decrease in personal filings is the uncertainty about the state of the economic recovery

November bankruptcy filings in the U.S. hit a 14-year low, driven by a decline in individuals filing for protection from creditors as they continue to enjoy the benefits of eviction moratoriums and other government assistance stemming from the coronavirus pandemic.

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Total bankruptcy filings amounted to 34,440 for the month, the lowest monthly total since January 2006, according to data from legal-services provider Epiq Systems Inc.

The data, however, showed a large divergence between commercial and personal filings.

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Commercial chapter 11 filings for November were up 40%, with 654 new cases compared with 449 over the same period in 2019, according to Epic.

On the other hand, noncommercial chapter 13 filings, which enable individuals to restructure their debt, were down 45% from a year earlier to 137,764 filings, according to Epiq. Noncommercial chapter 7 filings, which enable individuals to liquidate their assets so as to escape their debt burden, declined by 21% in November.

"As the country continues to battle a surging coronavirus pandemic, liquidity in the form of government programs and state eviction moratoriums continue to delay new personal filings," said Chris Kruse, senior vice president of Aacer, an Epiq business unit that compiles bankruptcy data.

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One factor for the decrease in personal filings is the uncertainty about the state of the economic recovery. Even though markets have been buoyed recently by positive developments regarding Covid-19 vaccines, many individual borrowers are still unsure about their near-term financial prospects, leading them to delay making a major personal decision such as filing for bankruptcy under chapters 7 or 13, according to Deirdre O'Connor, managing director of corporate restructuring at Epiq.

"These historic-low bankruptcy filings reflect the overall uncertainty about our economic recovery," Ms. O'Connor said. "Bankruptcy is a legal tool to restructure, but in this unknown financial environment the benefit from seeking bankruptcy protection is unclear for individuals, families and even large companies."

One reason why corporate filings have increased recently while personal filings have gone in the opposite direction is that companies often file for bankruptcy for strategic reasons, to facilitate a merger or buyout for example. Individuals, on the other hand, don't file for bankruptcy for these reasons, Ms. O'Connor said.

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Ed Flynn, a consultant at the American Bankruptcy Institute, recently wrote in a report that chapter 13 filings have fallen by about 56% since the start of the pandemic. In particular, there are fewer homeowners filing for bankruptcy protection, which may be a result of state and federal moratoriums on foreclosures, he said.

The single-family moratorium on foreclosures and evictions imposed by the Federal Housing Finance Agency as well as the temporary residential eviction moratorium imposed by the Centers for Disease Control and Prevention expire Dec. 31.

A bipartisan group of leaders from both houses of Congress recently submitted a roughly $900 billion proposal for an extension of coronavirus relief measures. However, Senate Majority Leader Mitch McConnell (R., Ky.) circulated a different plan to his Republican caucus that he said reflected what President Trump would be willing to sign into law in the waning days of his administration, after speaking with White House officials.

If the eviction moratoriums aren't extended past Dec. 31, there is likely to be a large backlog of people who would be forced to file for personal bankruptcy protection, said Mr. Kruse.

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