The new federal stimulus bill, Consolidated Appropriations Act, 2021 (H.R. 133), signed into law December 27, 2020 by President Trump will continue to delay new bankruptcy filings into 2021. The net effect of the new stimulus is a continued delay in new filings as consumers and businesses have access to short term capital. Many of the programs from the first stimulus package in March 2020 are either extended or modified, which positively impacts consumer liquidity and allows more people the opportunity to get back to work, avoid evictions, and continue treading water as the pandemic continues.
New stimulus checks of $600 for individuals making up to $75,000 a year, an extension of the federal eviction moratorium until January 31, 2021, $25 billion targeted for rental assistance, $13 billion to bolster food stamp benefits and $2 billion to help families with coronavirus-related funeral expenses, will all help struggling consumers to take a breath before the end of the year. It is, however, unlikely to prevent what is widely expected to be a “tsunami of evictions.” According to the latest data from the U.S. Census Household Pulse survey, almost 13 million renter households are behind with their rent. Of those, nearly 7 million said they were "very likely" or "somewhat likely" to be evicted in the next two months.
The National Low Income Housing Coalition (NLIHC) estimates that residents owe between $34 billion and $70 billion in unpaid rent. Without additional assistance, a one-month eviction moratorium extension only kicks the can down the road. Homeowners who have put their loans into forbearance, which paused their mortgages payments, will not have to catch up on all their payments at once, however, that same grace has not been granted for renters. By the end of January, those renters could owe large lump sums of back rent. Once people start losing their homes after January 31, we are likely to start seeing an uptick in bankruptcy filings to keep them from losing additional assets.
More importantly for many consumers, new federal unemployment stipends of $300 per week (for 11 weeks) will aid those who are still experiencing lockdowns and are simply unable to return to work due to the mandatory shuttering of small businesses. The legislation also extends employment benefits to self-employed individuals and gig workers, who have experienced higher than average unemployment rates. Unemployment benefits will likely see additional congressional action early next year, further extending consumer liquidity beyond the current March 14, 2021 expiration date.
The Paycheck Protection Program (PPP) managed by the Small Business Administration was granted a third round of funding in the new bill, providing a total of $325 for small businesses, including $284 billion in forgivable loans to be used primarily to retain employees. $20 billion is earmarked for businesses in low-income communities and $15 billion for struggling live venues, movie theaters and museums. While this new round of funding will help improve small business liquidity, it is only expected to cover less than three months of payroll costs. Another round of funding will be needed to help carry small businesses through the estimated six months it will take to resume normal operations.
The stimulus bill provides aid for mid-to-large size companies in specific sectors, including:
- Transportation - $15 billion to help airlines maintain their payrolls, $14 billion for mass transit, $10 billion for state highways, $2 billion for airports and $1 billion for Amtrak.
While the stimulus package is a welcome relief for consumers who were fast approaching evictions at the end of 2020, the backlog of consumer bankruptcy filings could start becoming evident as soon as the end of January when eviction moratoriums expire, or in mid-March, if federal unemployment stipends are not further extended. Small to large businesses are getting a helping hand in the new stimulus package that will help improve their liquidity, but until vaccines are widely distributed and companies are able to get employees back to work full-time, we may yet see commercial filings spike in 2021. Buckle up, we’re in for a bumpy ride.
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