The end of federalaid is putting many Americans and businesses under mounting financial pressure, leading to a spike in bankruptcies.
Total bankruptcy filings in January shot up 19% in January to 31,087, up 19% from a year ago, according to data from Epiq, a legal research firm. The number of Americans who filed for bankruptcy across Chapters 7, 11 and 13 shot up 20% in January from a year ago.
The surge in filings comes as rising interest rates and high inflation continue to stress household budgets.
“There’s no cash coming in from the government anymore,” Amy Quackenboss, executive director at the American Bankruptcy Institute, told CBS MoneyWatch. “Some people are finally experiencing that economic crunch. They’re having to pay their mortgages, their car payments. There are several people who haven’t been able to weather that storm.”
Difficulty hiring in a tight labor market, the ongoingand fears of a recession have also prompted some companies to file for bankruptcy, Quackenboss said. That said, while bankruptcies have increased, they still haven’t reached pre-pandemic levels, she added.
Reality setting in
The federal government sent $817 billion in stimulus payments to Americans, according to a New York Times estimatebut that lifeline ended in March 2021. Congress similarly doled out $800 billion in Paycheck Protection loans to companies large and small before that program ended in May 2021.
Those federal funds helped struggling companies and individuals for about a year and a half, but reality is starting to set in, bankruptcy experts say.
“Many businesses were sorting it out during COVID-19 and have just now filed for bankruptcy,” said Paige Marta Skiba, a bankruptcy law professor at Vanderbilt University. “They just now realized their business won’t survive outside that protected world of paycheck protection payments.”