Jialan Wang | Assistant Professor of Finance | University of Illinois at Urbana-Champaign|

Bankruptcy and the COVID-19 Crisis


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 reversed during the COVID-19 crisis. While aggregate filing rates were very similar to 2019 levels prior to the onset of the pandemic, filings by consumers and small businesses dropped dramatically starting in mid-March of 2020, contrary to media reports and many experts’ expectations. Total bankruptcy filings declined by 31 percent between 2019 and 2020. Consumer and business Chapter 7 filings rebounded moderately starting in mid-April and stabilized around 25 percent below 2019 levels, while Chapter 13 filings stabilized around 55 percent below 2019 levels. We show that the decline in filings was especially concentrated among homeowners and that bankruptcy filings fell the most in areas with the largest declines in mortgage foreclosure rates, suggesting that loan forbearance is an important factor in the decline in bankruptcy. We also find evidence consistent with liquidity constraints preventing some debtors from filing during the pandemic.