Despite pandemic, fewer Whatcom residents filed for bankruptcy. How that could change
While the COVID-19 pandemic has disrupted Whatcom County’s economy, it hasn’t yet led to an increase in bankruptcy filings.
Whatcom County had 118 bankruptcy filings in the first half of this year, which is down 20.3% compared to the same period in 2019. That’s according to data compiled by the U.S. Bankruptcy Court Western District in Seattle.
This significant drop in filings is in line with national trends, which showed similar decreases this past spring. The big drop is being attributed locally and nationally to the federal government relief packages, including the boost in unemployment benefits and the Paycheck Protection Program.
The slowdown in filings may not last, however. Either an honest economic recovery needs to happen or more stimulus is needed, said Hart Hodges, co-director at Western Washington University’s Center for Economic and Business Research.
Will lower-income households be able to hold on if benefits from the last stimulus package are not extended, particularly if the economy struggles to reopen because of the virus? Congress is currently working on a new relief package this week.
“I think the question is whether that shoe will drop,” Hodges said in an email, referring to rising bankruptcy filings.
Another factor in the lower number of filings is timing, said Tom Lester, a Bellingham attorney who specializes in bankruptcies. Since someone can generally only file for a personal Chapter 7 bankruptcy once every eight years, a person or business needs to be strategic on when they do it to best protect their assets. Given all the uncertainty for the coming months with this pandemic, now might not be the best time for many people in financial trouble.
“You don’t want to use it too quickly,” Lester said.
Lester also noted that several other things that can trigger a bankruptcy, such as an eviction, have been put on hold.
Hodges said that it is too soon to tell if bankruptcy filings will rise because of the pandemic. For families, such filings are usually done when there are no other financial options left, so it is considered a lagging economic indicator.
A rising rate of bankruptcy filings could make an economic recovery take longer because of the reduced spending, creating a ripple effect, said James McCafferty, co-director at Western’s business research center.
Bankruptcies are on the rise in one particular segment of the economy: National companies, particularly retailers. JC Penney, GNC, Tuesday Morning, J. Crew and Brooks Brothers are examples of companies that are struggling to reorganize through the bankruptcy process.
