Planning for an American Bankruptcy Epidemic
The COVID-19 pandemic looks likely to cause the biggest surge in bankruptcies that the United States' court system has ever experienced. Without an immediate increase in judicial capacity to manage the coming flood of cases, an even larger economic disaster awaits.
PROVO/CAMBRIDGE – Neiman Marcus and J.C. Penney, two of America’s retailing giants, recently failed to pay interest on their debt. We should expect one or both firms to file for bankruptcy soon, heralding a surge of US business failures caused by the COVID-19 pandemic. And with most American households currently lacking the cash to pay expenses for three months, many families and individuals will declare bankruptcy, too.
Before long, the United States could face a trifecta of millions of insolvent consumers, thousands of small-business failures, and many bankruptcies of large public firms, with whole industries going broke at the same time.
Bankruptcy filings in the US have historically peaked several months after a surge in unemployment. And US unemployment is now rising at an unprecedented rate, with more than 30 million claims filed in the last six weeks. If historical patterns hold in the coming months, the bankruptcy surge could be the biggest that the US court system has ever experienced.