Recessions predictably led to cyclical increases in bankruptcies, until 2020 again broke precedent.

Deferred Debts Will Still Come Due
Personal bankruptcy filings fell by more than 30% from 2019 to 2020 as consumers were given reprieves from financial obligations. Starting with the CARES Act in March 2020, student loan payments were deferred, mortgage payments could be postponed and tenant evictions were halted. These protections have allowed consumers to stay on top of their other obligations, leading to a record decline in bankruptcy activity. 

Business bankruptcies held steady in 2020 despite a volatile year. Some high-profile bankruptcy filings told the story of the recession, with car rental agencies, restaurant chains and brick-and-mortar retailers leading the headlines. However, the effects of the recession were idiosyncratic. Many businesses found themselves on the upward trend of the K-shaped recovery and were never close to bankruptcy.

The crisis is not over. Debts continue to accumulate. More than 5% of mortgage borrowers remain in forbearance and may find themselves unable to pay when these protections expire. The 18% of delinquent tenants will face eviction and lawsuits if they cannot resume payments—assuming their revenue-deprived landlords do not first file bankruptcy themselves. Businesses may yet face bankruptcy if the economy does not normalize as expected this year. The economy remains poised for a strong year ahead, and it will be needed to head off a delayed wave of bankruptcies.

Carl R. Tannenbaum is executive vice president and chief economist at Northern Trust. Ryan James Boyle is vice president and senior economist at Northern Trust. Vaibhav Tandon is second vice president and an economist Northern Trust.

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