Bankruptcy and the COVID-19 Crisis

29 Pages Posted: 12 Sep 2020

See all articles by Jialan Wang

Jialan Wang

University of Illinois at Urbana-Champaign - Department of Finance

Jeyul Yang

University of Illinois at Urbana-Champaign

Benjamin Charles Iverson

Brigham Young University

Raymond Kluender

Harvard University - Business School (HBS)

Date Written: September 10, 2020

Abstract

We examine the impact of the COVID-19 economic crisis on business and consumer bankruptcies in the United States using real-time data on the universe of filings. Historically, bankruptcies have closely tracked the business cycle and contemporaneous unemployment rates. However, this relationship has reversed during the COVID-19 crisis thus far. While aggregate filing rates were very similar to 2019 levels prior to the severe onset of the pandemic, filings by consumers and small businesses dropped dramatically starting in mid-March, contrary to media reports and many experts' expectations. The total number of bankruptcy filings is down by 27 percent year-over-year between January and August. Consumer and business Chapter 7 filings rebounded moderately starting in mid-April and stabilized around 20 percent below 2019 levels, but Chapter 13 filings remained at 55-65 percent below 2019 levels through the end of August. In contrast to the 2007-9 recession, states with a larger increase in unemployment between April and July experienced greater drops in bankruptcies. Although they make up a small share of overall bankruptcies, Chapter 11 filings by large corporations have increased since 2019, and are up nearly 200 percent year-over-year from January through August. These patterns suggest that the financial experiences of consumers, small businesses, and large corporations have diverged during the COVID-19 crisis. Large businesses have continued to seek and receive relief from the bankruptcy system as they would during a normal recession, and relatively wealthy homeowners have on average benefited from the fiscal stimulus and housing moratoria mandated by the CARES Act and other policies. However, non-homeowners and small businesses may face financial, physical, and technological barriers to accessing the bankruptcy system, especially in the areas hardest-hit by unemployment.

Keywords: bankruptcy, financial distress, COVID-19

JEL Classification: G33, G51, G01, G32

Suggested Citation

Wang, Jialan and Yang, Jeyul and Iverson, Benjamin Charles and Kluender, Raymond, Bankruptcy and the COVID-19 Crisis (September 10, 2020). Available at SSRN: https://ssrn.com/abstract=3690398 or http://dx.doi.org/10.2139/ssrn.3690398

Jialan Wang (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jeyul Yang

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Benjamin Charles Iverson

Brigham Young University ( email )

United States

Raymond Kluender

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
642
Abstract Views
2,773
rank
46,860
PlumX Metrics