Federal Aid Has So Far Averted Personal Bankruptcies, but Trouble Looms

Once federal benefits dry up, highly indebted consumers could be forced to file.

Credit…Eamon Queeney for The New York Times

The United States went into the Great Lockdown with the most household debt in history, stagnant incomes for all but high earners and armies of people telling pollsters they were living paycheck to paycheck. Then, for millions, their paychecks stopped.

But instead of a stampede to the bankruptcy courts, personal bankruptcy filings — a useful, if extreme, indicator of the financial health of the American consumer — dropped sharply from April through June, even as unemployment soared, according to calculations by the American Bankruptcy Institute based on data from Epiq Global, a legal research and analytics firm.

Bankruptcy Filings and Household Debt

American households had more debt than ever when the pandemic sent unemployment soaring this spring. But bankruptcy statistics have yet to reflect the struggle to manage that debt; personal bankruptcy filings are in sharp decline.

By The New York Times | Sources: Epiq (bankruptcy); Federal Reserve Bank of New York (household debt)

“Filings have just gone through the floor,” said Henry E. Hildebrand III, a consumer bankruptcy trustee in Nashville. Such trustees supervise the finances of people who have declared bankruptcy and agreed to pay creditors over three to five years. Mr. Hildebrand usually gets 350 to 400 new cases a month, he said, but last month he added just 107. Nationwide, the drop in personal bankruptcy filings is the biggest in 15 years.

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