How the rollback of pandemic assistance could increase personal bankruptcy : The Indicator from Planet Money For much of the pandemic, government aid helped lower the number of personal bankruptcies dramatically. With those measures ending, close observers say a sharp increase is likely.

Where are all the COVID-19 bankruptcies?

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DAN WEISSMANN, BYLINE: So Darian Woods, if you were to pick a number that went in a surprising direction during the pandemic, what would you choose?


Oh, what about hours of Netflix logged?

WEISSMANN: (Laughter) I don't know if that's a big surprise. How about personal bankruptcies?

WOODS: Personal bankruptcies - these actually went down.

WEISSMANN: Yeah, way down, right?

WOODS: So we just got the numbers for 2021. Just under 400,000 people filed for bankruptcy, and that's down by about a half from 2019, the year before the pandemic.

WEISSMANN: But I think we're going to see that trend head the other way, like, in a big way.

WOODS: So what makes you think that, Dan?

WEISSMANN: Well, you know, I've got a crystal ball.

WOODS: (Laughter).

WEISSMANN: And we've got somebody on the inside.

LARA CECCARELLI: My name is Lara Ceccarelli. I am a certified credit counselor.

WEISSMANN: Lara works for a nonprofit agency called American Financial Solutions.

CECCARELLI: My job basically is helping people who are having a difficult time with their finances or with debt to find solutions that make sense for their situation.

WOODS: Lara spends her entire week talking with people - like, dozens of people each week - for whom bankruptcy could make a lot of sense.

WEISSMANN: That is as inside as it gets. Decisions about whether to file for bankruptcy or not are getting made on Lara's phone line all the time, so she can tell us why we've been seeing fewer bankruptcies and why she thinks we're going to see a lot more pretty soon.


WOODS: This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods, and we have Dan Weissmann joining us from the podcast "An Arm And A Leg." Welcome, Dan.

WEISSMANN: Thanks, Darian.

WOODS: Today on the show - why Lara thinks that we're going to see a lot more post-COVID bankruptcies and why this matters.


WOODS: All right, Dan, what is Lara's take on why bankruptcies have been down so dramatically during the pandemic?

WEISSMANN: Well, she says this actually happened in two stages. There was the first phase - those first few months when everything was just, you know, weird and disconcerting and everybody was baking sourdough bread and learning to use Zoom.

WOODS: Yeah, I remember it well.

WEISSMANN: Am I giving you a little flashback here, a little PTSD?

WOODS: (Laughter).

WEISSMANN: And at that time, Lara says nobody had enough information to make a decision like filing for bankruptcy.

CECCARELLI: The financial challenges that people were facing were kind of brand new, right? We don't know when people are going to be going back to work. We don't know when this thing is going to turn around. We don't know whether bankruptcy makes sense because I don't know what your job situation is going to look like in six months.

WEISSMANN: And also, I don't know what kind of help might be on the way, which - right? - turned out to be a lot. There were extra unemployment benefits and stimulus checks and bans on evictions and foreclosures. So that created a long second phase.

CECCARELLI: More toward the middle, as we kind of got, you know, second and third stimulus checks, we started to kind of get into a well-oiled cycle as far as using the government resources. We did start to see more people who were able to self-manage their debt without having to do something like bankruptcy.

WOODS: People were getting the help they needed, and not just from the government.

CECCARELLI: A lot of creditors at the beginning of the pandemic were offering, you know, deferral programs for months at a time while people were off of work, and those are really starting to dry up.

WEISSMANN: Yeah, starting to dry up - you know, that's a phrase Lara uses a couple of times 'cause, you know, that second phase, it's pretty much over. All those government supports have been going away, too, right?

WOODS: The federal moratorium on foreclosures ended last July.

WEISSMANN: The federal eviction ban ended in August.

WOODS: Extra unemployment benefits ended in September.

WEISSMANN: And once those changes happened, Lara could hear the results on her phone line.

CECCARELLI: This fall was really when it started to pick back up. Like, late fall, early winter - like, that was really when we started seeing people realize that the lifelines were sort of drying up.

WEISSMANN: Drying up - there's that phrase again.

WOODS: Right about then, in November, the National Foundation for Credit Counseling commissioned a survey about how people were doing financially and how they were feeling at this time. A lot of people were like, yeah, doing pretty well.

But a bunch of people were not. A quarter of people said they were more worried than they had been a year earlier about meeting basic expenses like food and housing.

WEISSMANN: Yeah, and Lara has been talking with those folks, like, every week.

CECCARELLI: People aren't done feeling the effects of the pandemic. People who were out of work are still maybe trying to catch up. And, you know, they've maybe accumulated debt because they were out of work and they had to use credit cards to cover costs.

WEISSMANN: Yeah. She's describing somebody she was just talking with. Like, they lost their job, paid the bills with credit cards and then burned up their savings making credit card payments. So, you know, now they've got a job and no savings and a ton of credit card debt.

CECCARELLI: You know, yeah, theoretically, they're back to work, so they're going to be OK. But now we have all of these expenses that have accumulated that we have to plug into the budget on top of all of the normal costs that we had pre-pandemic. So, you know, it's catching up with people.

WEISSMANN: Yeah. And that means more people she's talking to are ready to do what Lara calls making a firm decision, a commitment, a concrete plan of action, which, you know, isn't necessarily bankruptcy. Some folks, she helps them set up a payment plan. You know, that's a commitment, too.

WOODS: And bankruptcy is not for everybody. It's not this kind of free ride. You might get some debts written off, but not necessarily all of them. And then for years, you have the world's lousiest credit. And that makes it tough to buy a house or even rent an apartment.

WEISSMANN: Yeah. You know, landlords check your credit, too. But now Lara's talking to more people for whom bankruptcy may be their best option.

CECCARELLI: So this week, I have had a lot of clients who are kind of ready to make firm steps, whereas before, it was a case of, well, you know, maybe I'll be able to pay off the debt with my stimulus check. So, you know, I don't know if I need a payment plan. Or maybe, you know, I'll be able to pay off my debt with my stimulus checks, so maybe I don't need bankruptcy.

WEISSMANN: And now, more of them are like, I need bankruptcy - which is a really difficult place to find yourself. But Lara does see a silver lining.

CECCARELLI: I think clients don't do well with the unknown financially, and I think I don't do well with the unknown, you know, financially for my clients. It's a little bit of a - it's the same thing.

WOODS: Now there's fewer unknowns.

CECCARELLI: I know that they're going to be OK because I can give them, you know, a clear plan of action because now we know, you know, where the cards have fallen.

WEISSMANN: There's a little bit of tough love, it sounds like, in what you're up to.

CECCARELLI: Yeah, it's - you know, and it's tough love for them, and it's also tough love for me 'cause there are definitely clients where I'm like, I like you. You're wonderful. I want to keep speaking to you.

WEISSMANN: But she thinks they're better off with a firm course of action.

WOODS: Now, all of this kind of raises a question - if Lara has been hearing people ready to take a firm course of action for months now, why do the latest rounds of numbers still show bankruptcies going down?

WEISSMANN: Yeah. Lara says she's not surprised 'cause getting from, oh, boy, I guess I'm looking at bankruptcy, to, I filed for bankruptcy. - that's a process. Even making the decision stick can take a while. After she tells someone she thinks bankruptcy is their best option, Lara says she checks in on them a few weeks later just to see if they've taken any action.

WOODS: And once you've got the commitment, you've got to find an attorney - one that you trust and you can afford. Then you need to gather a bunch of materials and file paperwork. It is a process.

WEISSMANN: Yeah. And from what Lara's seeing - I mean, what she's hearing from those dozens of people she talks with every week - that process is starting to happen, and she thinks it's going to keep happening for a while. There's still pandemic supports that haven't ended yet.

CECCARELLI: I think we'll probably see another wave of decisions, you know, once student loan deferrals end.

WEISSMANN: So sometime this year, she thinks we should get ready to see a big, long wave of personal bankruptcies.

CECCARELLI: In fairness, every time I've predicted something about, you know, finances during the pandemic, it's been wrong. So I don't want to hold myself to anything. But, you know, I think if we continue the way that we are and, you know, there aren't really any more kind of federal aid packages coming down the pipeline, I think this is probably the moment that we're going to be in for a while.

WEISSMANN: Yeah, you know, a moment when a big wave of bankruptcies comes out as, like, a COVID hangover.

WOODS: Most of us won't get caught in that wave. If bankruptcies doubled, that'd still be less than a million per year - a lot of people, a lot of pain, but not a lot compared to the whole of the country.

WEISSMANN: The rest of us will hear about numbers going up, and it'll make the misery and fear that Lara hears about all the time a little more visible to the rest of us. And we might see something else, too, 'cause we might find it's a little more difficult to borrow money in general. After the crash of 2008, when lots of people hit trouble, banks tightened up on borrowing limits on things like credit cards and home equity loans. That could happen again - you know, just something to look forward to, Darian. I'm just a bundle of light here today.

WOODS: You never fail to cheer me up. Thanks, Dan.

WEISSMANN: It's what I live for.


WOODS: This episode was produced by Nicky Ouellet and Emily Peiser-Crater (ph). It was engineered by Isaac Rodrigues. Corey Bridges is our fact-checker. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.


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