COVID-19 Bankruptcy Study

Bankruptcy in America: Tracking Commercial and Personal Filings by State

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COVID-19 has impacted virtually every sector of the U.S. economy. Struggles in one sector caused ripple effects on others when stay-at-home orders halted or curtailed normal business operations. Unemployment has reached historic levels, and in April, consumer confidence dropped to its lowest point since 2014 and has yet to rebound to pre-COVID-19 levels. Hertz, Neiman Marcus and JCPenny are just some of the corporations that have already filed for bankruptcy.

Though commercial bankruptcy filings in 2020 are higher than they were in the same period of 2019, that trend began in January — before the pandemic. A surge of personal and commercial bankruptcies seems inevitable in the wake of the coronavirus, but it hasn’t hit yet.

An Uptick of Bankruptcies Is Predicted

Since the start of the coronavirus, personal bankruptcies have declined in most states compared to prior periods. Court closures have artificially slowed bankruptcy proceedings. Financial relief for businesses and individuals through the coronavirus relief bill, which delivered direct payments to individuals and Paycheck Protection Program loans to help businesses pay employee wages, has temporarily offset losses.

That does not mean Americans are out of the woods financially. Bankruptcies tend to be a lagging indicator of economic health, and some experts are predicting an abundance of bankruptcy filings in the coming months. MoneyGeek has analyzed the correlation between monthly unemployment levels and bankruptcy rates since 2006 and found a strong historical correlation except for the months following February 2020. Once the factors that are temporarily suppressing bankruptcy filings cease, the full economic impact of COVID-19 will become more evident. To gauge the financial effects of COVID-19 on individuals and businesses, MoneyGeek will be tracking bankruptcies over the next several months.

Commercial Bankruptcies by State

When businesses struggle, debt payments can make financial turnaround impossible. For companies in distress yet potentially viable, Chapter 11 bankruptcy is an option to restructure, and in some cases, dismiss some of the company's debt. This process can be time consuming and costly, and it tends to be a better solution for large corporations rather than small businesses, according to a recent Brookings report. For small and mid-sized companies, bankruptcy costs can be as high as 30% of the business's value, and a reorganization doesn't make sense. Two-thirds of companies that file for Chapter 11 are liquidated rather than reorganized.

While there was a pre-pandemic uptick in Chapter 11 filings, commercial bankruptcies are also likely to increase due to economic hardships and depressed consumer demand in the pandemic. MoneyGeek has compiled bankruptcy filing data published by the American Bankruptcy Institute, updated monthly to track the ongoing economic impact of COVID-19.

Delaware, a favorite state for business incorporations because of low-tax rates and business-friendly policies, has the most business bankruptcy filings. While Delaware has experienced a large number of filings related to COVID-19, it doesn’t necessarily have the highest rate of business bankruptcy filings. To adjust for state population differences, we based our rankings on filings per 10,00 businesses.

Rates of COVID-19 Chapter 11 Filings by State

Rank
State
COVID-19 Rate per 10K Businesses*
COVID-19 Filings
Change in Filings YoY

1

Texas

22.85

1,373

775

2

New York

13.47

737

57

3

Delaware

9.65

1,448

970

4

Nevada

9.43

64

20

5

Virginia

8.50

172

113

6

Mississippi

7.42

44

26

7

Florida

6.77

384

-24

8

District Of Columbia

6.74

16

-15

9

Alabama

5.88

59

8

10

West Virginia

5.84

21

-16

11

Arizona

5.45

79

-16

12

Tennessee

5.21

72

-8

13

Wyoming

5.16

11

7

14

New Jersey

4.66

109

-63

15

Missouri

4.49

69

33

16

Georgia

4.20

99

-74

17

Louisiana

4.14

44

-22

18

California

4.12

393

-32

19

Idaho

4.06

20

10

20

Colorado

3.88

67

12

21

Maryland

3.73

52

-24

22

Maine

3.59

15

10

23

Kentucky

3.29

30

-5

24

New Mexico

3.19

14

-7

25

Arkansas

3.14

21

-1

26

North Carolina

2.89

68

-2

27

Michigan

2.78

62

-24

28

Illinois

2.52

81

-22

29

Pennsylvania

2.50

76

-52

30

Massachusetts

2.22

40

-17

31

Ohio

2.14

54

-76

32

Utah

2.07

17

-4

33

Oklahoma

2.03

19

-18

34

Washington

2.01

39

-36

35

Indiana

1.69

25

-14

36

Montana

1.55

6

-3

37

Hawaii

1.52

5

-3

38

South Dakota

1.48

4

-2

39

Minnesota

1.45

22

0

40

Vermont

1.43

3

-2

41

South Carolina

1.36

15

6

42

New Hampshire

1.30

5

-8

43

Wisconsin

1.27

18

-7

44

North Dakota

1.22

3

0

45

Kansas

1.21

9

-36

46

Nebraska

1.09

6

-17

47

Alaska

0.94

2

-5

48

Oregon

0.76

9

-10

49

Connecticut

0.67

6

-23

50

Iowa

0.60

5

-6

51

Rhode Island

0.35

1

-3

* Due to the large number of businesses that are incorporated in the state of Delaware, the count of Delaware businesses used to calculate the rate have been adjusted to 1.5 million as reported in Delaware's Annual Report.

Personal Bankruptcies by State

When consumers encounter financial hardship they cannot recover from on their own, bankruptcy allows them to resolve their debts and move on. The two primary forms of bankruptcy for individuals are Chapter 7, which entails liquidating assets to pay off debts, and Chapter 13, which creates a long-range payment plan to stave off property foreclosure. Bankruptcy is typically an option of last resort, as it can cause stress and long-term credit damage.

Analyzing Chapter 7 and 13 bankruptcies filed since March 2020 as published by the American Bankruptcy Institute, MoneyGeek has ranked states by their number of personal bankruptcies. To adjust for population differences, we've based our rankings on filings per 100,000 people.

States With the Most COVID-19 Personal Bankruptcies

Rank
State
COVID-19 Filings per 100K
COVID-19 Bankruptcies
November Filings

1

Alabama

252.5

12,382

1,147

2

Tennessee

208.8

14,259

1,347

3

Mississippi

192.6

5,731

526

4

Indiana

186.9

12,580

1,128

5

Utah

175.6

5,629

519

6

Nevada

175.3

5,399

544

7

Kentucky

171.4

7,657

680

8

Georgia

166.8

17,709

1,818

9

Arkansas

164.1

4,952

443

10

Ohio

161.4

18,867

1,582

11

Illinois

159.9

20,257

1,676

12

Missouri

142.7

8,757

785

13

Michigan

142.6

14,244

1,250

14

Wisconsin

138.7

8,077

687

15

Oklahoma

134.7

5,329

433

16

Arizona

130.5

9,498

856

17

Virginia

129.8

11,076

1,019

18

Maryland

126.7

7,659

704

19

Florida

118.9

25,536

2,435

20

Nebraska

113.4

2,194

212

21

Idaho

109.3

1,953

190

22

Louisiana

107.7

5,008

499

23

Kansas

105.0

3,059

283

24

New Jersey

103.4

9,184

827

25

Oregon

97.2

4,099

353

26

Colorado

95.8

5,518

484

27

Delaware

95.1

926

75

28

Rhode Island

93.0

985

100

29

West Virginia

87.6

1,570

127

30

Wyoming

87.4

506

46

31

Iowa

84.0

2,649

215

32

California

82.6

32,655

2,887

33

Minnesota

81.1

4,571

335

34

New Mexico

76.5

1,605

106

35

Connecticut

75.9

2,706

226

36

Hawaii

75.4

1,068

114

37

Pennsylvania

71.9

9,210

755

38

Washington

71.3

5,431

478

39

New York

64.4

12,521

1,210

40

South Dakota

61.6

545

38

41

South Carolina

60.5

3,113

294

42

North Dakota

59.1

450

32

43

Montana

58.1

621

35

44

North Carolina

55.0

5,770

528

45

Texas

52.0

15,082

1,401

46

New Hampshire

51.2

696

54

47

Maine

46.3

623

48

48

District Of Columbia

43.6

308

17

49

Vermont

41.2

257

16

50

Massachusetts

38.8

2,674

248

51

Alaska

23.6

173

14

Filing for Bankruptcy During COVID-19

a man and woman discuss their bankruptcy options as they review their debts

a man and woman discuss their bankruptcy options as they review their debts

If you've been hit hard financially by the pandemic, you are not alone. Millions of Americans face unemployment, and many businesses have received government funds to help them try to weather economic devastation. Especially in the pandemic, there is no shame in facing financial hardships and feeling like you're out of options.

If debt settlement or consolidation doesn't offer a path out of your financial struggles, bankruptcy could be a viable option.

Bankruptcy can be hard to swallow emotionally, and it carries practical consequences like required waiting periods for future mortgages. Still, depending on your situation — whether you'd file for bankruptcy individually or for your business — learning about your bankruptcy options could give you some peace of mind.

Chapter 7

Chapter 7 bankruptcy is an approach where individuals liquidate assets to pay off debts. Chapter 7 works best for people who have unsecured debt they've taken on without pledging collateral such as credit cards or medical debt. If you have assets you can liquidate, Chapter 7 bankruptcies can resolve your debt relatively quickly and give you a chance to start fresh.

Chapter 13

Chapter 13 bankruptcy is designed for individuals who have a home or other secured property at risk of foreclosure. In Chapter 13 bankruptcy, individuals develop a three-to-five-year payment plan that allows for more manageable payments. You must have regular income to cover the reset payment amounts.

Chapter 11

If you own a business and you're struggling to make the financial equation work, Chapter 11 bankruptcy might be a lifeline. Filing for Chapter 11 enables you to restructure your debts so you can make affordable payments. Your business must be viable, and you'll need a plan to make it sustainable under new terms.

Expert Advice on Bankruptcy

Many factors inform the decision to file for bankruptcy. MoneyGeek gathered advice from professionals with expertise in business, economics and finance to answer pressing questions about bankruptcy. These specialists offer solutions and guidance for businesses and individuals looking to make major financial decisions.

  1. What resources would you recommend for individuals going through bankruptcy now or who anticipate filing for bankruptcy soon?
  2. For businesses encountering financial difficulties, what actions do you advise to avoid bankruptcy?
  3. How can families, individuals and businesses recover after bankruptcy?
  4. What additional advice would you offer to people who are struggling financially and weighing bankruptcy as an option?
Jeremy R. Fischer
Jeremy R. Fischer

Chair, American Bankruptcy Institute’s Bankruptcy Litigation Committee

Lois R. Lupica
Lois R. Lupica

Maine Law Foundation Professor of Law, University of Maine School of Law

Paul Sheard, Ph.D.
Paul Sheard, Ph.D.

Research Fellow, Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School

Chester S. Spatt
Chester S. Spatt

Pamela R. and Kenneth B. Dunn Professor of Finance at the Tepper School of Business at Carnegie Mellon University

Karen Gordon Mills
Karen Gordon Mills

Senior Fellow, Harvard Business School

Jackie Boies
Jackie Boies

Senior Director of Housing and Bankruptcy Services, Money Management International

Matthew Bruckner
Matthew Bruckner

Associate Professor of Law, Howard University School of Law

Nancy Rapoport
Nancy Rapoport

Garman Turner Gordon Professor of Law, Boyd Law School and Affiliate Professor of Business Law and Ethics, Lee Business School, University of Nevada, Las Vegas

Henry J. Sommer
Henry J. Sommer

President, National Consumer Bankruptcy Rights Center

Susan E. Hauser
Susan E. Hauser
Reed Allmand
Reed Allmand

Owner & Attorney

Moving Forward Financially

Filing for bankruptcy can be a lifeline for people and businesses facing financial hardships, but it's not a step to take lightly.

"Some people may feel a 'moral aversion' to bankruptcy as if they are cheating society or being dishonest. However, we have bankruptcy protection for very good reasons," says Shawn A. Cole, the John G. McLean professor of business administration at Harvard Business School.

"Individual bankruptcy law, in particular, is designed to help people when they are at a vulnerable time and encourage risk-taking, such as entrepreneurship, vital to economic growth. In practice, firms, lenders and even our current president routinely file for bankruptcy. So I would encourage individuals to rationally examine the benefits and costs of bankruptcy protection, rather than following emotion," says Cole.

Over time, consumers can rebuild their credit and access credit cards, auto loans and even mortgages. Though many consumers facing financial distress may feel their situation is bleak, bankruptcy creates a path for consumers to start over financially.

Methodology

To create the personal and commercial bankruptcy rankings by state, MoneyGeek utilized monthly bankruptcy filing data published by the American Bankruptcy Institute. We calculated the number of bankruptcies filed since March 2020 in each state to measure bankruptcy trends since COVID-19. To adjust for population differences, MoneyGeek utilized U.S. Census data to calculate per capita and per business rates of bankruptcy.

About the Author


expert-profile

Deb Gordon is author of "The Health Care Consumer's Manifesto (Praeger 2020)," a book about shopping for health care based on consumer research she conducted as a senior fellow in the Harvard Kennedy School's Mossavar-Rahmani Center for Business and Government between 2017 and 2019. Her research and writing have been published in JAMA Network Open, the Harvard Business Review blog, USA Today, RealClear Politics, TheHill and Managed Care Magazine. Deb previously held health care executive roles in health insurance and health care technology services. Deb is an Aspen Institute Health Innovators Fellow and an Eisenhower Fellow, for which she traveled to Australia, New Zealand and Singapore to explore the role of consumers in high-performing health systems. She was a 2011 Boston Business Journal 40-under-40 honoree and a volunteer in MIT's Delta V start-up accelerator, the Fierce Healthcare Innovation Awards and various mentorship programs. She earned a B.A. in bioethics from Brown University and an MBA with distinction from Harvard Business School.


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