As the pandemic grinds on, more area residents find themselves out of work and many are under greater financial strain. But so far, markedly fewer are declaring bankruptcy.
Whether a lull that so far has seen Rochester-area filings drop nearly 30 percent will last or a bankruptcy dam will burst remains to be seen.
Bankruptcy attorney Douglas Lustig has represented area debtors and creditors and has served as a Chapter 7 trustee in the Rochester Bankruptcy Court for several decades. He believes measures like state- and federally-imposed eviction moratoriums, extended unemployment benefits, stimulus checks and federal pandemic aid for businesses under the Paycheck Protection Program have delayed filings.
When such measures cease, Lustig predicts, a flood of bankruptcy filings is likely hit sometime in 2021.
“A colleague of mine has predicted a tsunami of new filings,” he says. “I don’t know that there will be a tsunami, but I think we will definitely see the numbers go up.”
Also a longtime Rochester bankruptcy lawyer, Ron Goldman is not sure whether the local bankruptcy court will be swamped next year.
Goldman says he has personally been nearly as busy in 2020 as in pre-pandemic years. Nevertheless, he concedes, the factors Lustig cites have kept filings down.
Federal and state court dockets have bogged down in the pandemic, he adds, slowing actions like home foreclosures that trigger bankruptcy filings.
“People are reactive rather than proactive,” Goldman explains. Debtors typically avoid filing until the wolf—in the form of a foreclosure notice, car repossession or wage garnishee notice—is at the door.
As the Rochester Beacon recently reported, the Rochester region saw joblessness shoot from a 4 percent rate in the first quarter of 2020 and less than 4 percent in 2019 to double digits in April. The rate fell back to single digits in September but still topped 6 percent and started inching back up again in October.
By comparsion, area bankruptcy filings were flat in January and February, dipped slightly in March, and have since seen monthly double-digit declines.
In November, area bankruptcy filings dropped to 79 from 112 a year ago. The decline filings tracks the pandemic, beginning with a 1 percent decline in March as the first COVID-19 cases hit locally. In April, the downward trend accelerated with 19.6 percent fewer filings in the Rochester Bankruptcy Court, and it continued with year-over year declines greater than 25 percent in each month thereafter. Total area bankruptcies this year through November are down 27.9 percent, showing a drop to 894 from 1,240 as of Nov. 30, 2019.
The comparison between the region’s unemployment rate and bankruptcy filings reflect overlapping but not identical geographical regions. Unemployment statistics compiled by the state Department of Labor reflect the six-county metropolitan statistical area, which includes Monroe, Livingston, Ontario, Orleans, Wayne and Yates counties. Of the six counties, Monroe—the most populous and the county with the highest concentration of poverty—had the highest unemployment rate in October, 6.4 percent.
Bankruptcy statistics reflect the federal Western District of New York’s Rochester Division, which covers nine counties: Monroe, Livingston, Wayne, Ontario, Seneca, Steuben, Yates, Schuyler and Chemung.
How long government aid will last and how generous it would be if another round of stimulus funding wins approval is not clear.
Federal supplemental unemployment benefits and other aid authorized by Congress in March under the Coronavirus Aid, Relief and Economic Security Act expires Jan. 31. Negotiations among the House, Senate and White House have so far failed to bear fruit. They are now down to the wire and as of midweek remained unresolved.
A moratorium on foreclosures of properties financed by federally back mortgages remains in effect, but other foreclosures can proceed. In the latter case, the longer times it is taking proceedings like foreclosures and evictions to wind their way through courts could still delay many debtors’ filings, Goldman says.
Even so, some signs could point to a future bankruptcy surge. Joblessness is even more pronounced among very low-wage workers, a cohort less able to absorb economic shocks like home foreclosure, unanticipated medical bills or vehicle repossessions.
According to Opportunity Insights, a nonprofit economy tracker at Harvard University, employment rates among Monroe County workers earning less than $27,000 a year fell by 17.3 percent over the first nine months of this year.
How many of the lowest-wage workers might turn to the bankruptcy courts is not clear, however, Goldman says.
Bankruptcy is a remedy for those with assets to protect, he notes, and for some of the most impoverished, the truism applies: “When you’ve got nothing, you’ve got nothing to lose.”
Will Astor is Rochester Beacon senior writer.