The coronavirus-induced lockdown will cause bankruptcies to surge in the coming months, economists have warned.
U.S Federal Reserve researchers predict the number of virus-related bankruptcies could jump by 200,000 to nearly 1 million unless government programs help stem the tide, Bloomberg Law reported.
Bankruptcy expert Edward Altman reportedly expects the dollar value of bankruptcies to set a new record amid the pandemic because “there are much greater amounts of debt outstanding now than in any prior downturn.”
“Whether it’s corporate bankruptcies or personal, this is unprecedented,” Altman told Bloomberg Law.
Economists at the Fed don’t expect the number of bankruptcies to climb as high as during the Great Recession, when personal bankruptcy filings peaked at 1.5 million in 2010, according to Bloomberg.
But that prediction might not hold “because the economy could deteriorate more than what we assume,” St. Louis Fed economist Juan Sanchez told the news service.
The central bank researchers’ estimates also didn’t account for medical bills that could weigh heavily on some Americans during the health crisis, according to the report.
Edward Altman, the professor emeritus at New York University’s Stern School of Business who developed a widely used method called the Z-score for predicting business failures, stated that bankruptcies related to Covid-19 shutdowns will set records in the next 12 months.
“Whether it’s corporate bankruptcies or personal, this is unprecedented,” Altman said in an interview. “We will break the record in dollar amounts because there are much greater amounts of debt outstanding now than in any prior downturn.”
At this point, he isn’t predicting record-breaking bankruptcy rates in the next year despite the surge in unemployment.
The bankruptcy fears come amid a surge in unemployment fueled by coronavirus-related lockdowns and business closures. Millions of Americans applied for jobless benefits in just three weeks, and some experts say the unemployment rate could climb as high as 30 percent in the second quarter.