In the Northern district of Illinois, Bankruptcy filings in April of 2021 are down 55% from April of 2019, the last year for which filings were not affected by the pandemic. The April figures continue the trend of bankruptcies being down for this calendar year (by 54% through April 30th) when compared to 2019.

Difficulties in pursuing credit and collections lawsuits in through the Illinois courts, limitations on moving forward with foreclosures and evictions, and the effects of government stimulus programs are among the factors which are limiting bankruptcy filings at this time.

The lack of bankruptcy filings is not, however, generally indicative of a healthy economy. There is an ordinary level of bankruptcy which supports the elimination or restructuring of debt in a healthy functioning economy. The current reduction in filings likely indicates that the ordinary business operations are not yet underway.

There are some who expect that there will be a “tsunami” of bankruptcy filings as business operations return to normal. This author does not agree with that particular belief. While there is likely to be some level of pent up need for debt relief, the idea that it would be an overwhelming number stands in conflict with a number of factors.

While there is a large amount of uncollected debt waiting to be collected through litigation in the circuit courts or through other techniques, a lot of debt will have “aged out” in the last 15 months. The passage of time tends to make debt less collectable (statutes of limitations come into play, people’s job and financial situations change, people retire, move or otherwise have distance placed between themselves and the debt). In addition, creditors may well be more likely to offer reasonable and affordable settlements when they are holding aged debt in a newly developing economy, allowing individuals and businesses to avoid bankruptcy (taking profits at that time rather than waiting even longer).

The arrearage in potential foreclosures may or may not “burst into” the bankruptcy courts. While there is certainly an accumulation of unresolved foreclosures in the courts, and mortgage arrearage issues playing out elsewhere, a variety of players are likely to be very interested in seeing that we do not have a repeat of the mortgage crisis we experienced just over a decade ago. Having an accumulation of distressed mortgages resolved in the bankruptcy court will probably not be “Plan A” for the parties currently controlling the levers of the economy. We will probably see a very large amount of support for distressed homeowners from the federal government, more than we have in the past.

Individual evictions and other forms of very “harsh” debt accumulated by individuals who are highly distressed financially is not ordinarily resolved in the bankruptcy court unless it is part of a larger situation (large medical, credit cards, personal or business loans or other debt). Bankruptcy is a method of resolving debt which is used by individuals and businesses which have, at least some, assets to protect. Theses assets can be houses, cars, paychecks or just the hope of a brighter future (generally, along with a fee for an attorney).

In conclusion, April bankruptcy filings continue to reflect the overall trend which began in March of 2020, when a precipitous decline in bankruptcy filings began. This situation reflects an economy which has not yet returned to normal operations. Whether there will be an increase in bankruptcies due to pent up demand for debt resolution is subject to debate, depending on the approach the creditors take to attempting to collect their old debt and the amount of government support that will be provided to homeowners in dealing with unresolved mortgage debt.