New reports show that bankruptcies in Dane County declined in 2020 compared to 2019.
According to US Courts Administrative Office, only 28 companies filed for bankruptcy in Dane County in 2020, up from 34 in 2019. Additionally, individual bankruptcies in Dane County fell from 773 in 2019 to 527 in 2020.
University of Wisconsin Center for Financial Security faculty director J. Michael Collins said that could simply be because institutions are more lenient towards individuals and businesses during the pandemic.
“There have been specific things that have happened in this pandemic where lenders are really lenient, and in some cases regulators have told them they have to be gracious,” Collins said. “We’ve seen lenders say, ‘We’re going to take a payment holiday’ or ‘We’re going to restructure the loan. “
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Adjunct Professor of Law Michael Richman teaches a course on bankruptcy at UW Law School. Richman added that this leniency is good for homeowners and businesses.
Richman said very few new businesses are starting up. Because of this, when a current business can’t afford to pay its rent, Richman said the landlord is better off being lenient than evicting residents.
“Look at a hypothetical small business on State Street that rents its space to an owner. The pandemic is hitting, and they are being required to shut down by order of the government, ”Richman said. “They are not making any money right now.”
Most leases, according to Richman, have a force majeure clause that states that in the event of an extraordinary event affecting the ability to pay, the obligation is released.
Thus, if a tenant believes that the force majeure clause has been violated, the tenant can sue the landlord. In order to avoid going to court, Richman said the owner could be more lenient and forgiving.
“The other dynamic that I think is going on, in the midst of a pandemic where everything is closed, what difference does it make if you go to court to get a judgment for a small business that can’t pay and force them out? “Richman said.” Are you going to find another tenant right away? Certainly not. “
Richman said that on top of that, there are government-ordered moratoria across the country that prevent evictions and other enforcement actions for a period of time.
Besides that landlords are more forgiving on rents and other business transactions, banks also work closely with their individual members to avoid bankruptcy.
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Branches of UW Credit Union are one of many banks working with members to try to alleviate financial disruption caused by the COVID-19 pandemic.
Whether through emergency loans or deferral of payments, Adam Fullmer, branch manager of UW Credit Union Monroe Street, said they were trying to develop personal plans to suit members’ current financial situation. .
“Preventing bankruptcy is a common goal,” Fullmer said in an email to the Badger Herald. “There are always signs that a member can go down this path. But with so many families reeling from unexpected financial decisions, our job is to make sure these warning signs aren’t overlooked. “
Richman said the timeline for each case of economic dislocation is different. In times of financial distress, bankruptcies can be noticed almost immediately or over a longer period of time.
Collins said there is a long process involved in bankruptcies, so it’s possible we haven’t seen the full effects of the pandemic just yet.
“It’s a legal process,” Collins said. “Trustees have to figure out who gets what in bankruptcy, and that process takes a while, so there is usually a lag. “
Collins said there is a subset of people, including low-paid workers and workers in the service sector, for whom it is not known how quickly they will return to work.
Collins said this group tends to be made up of young women who are mostly people of color.
“From late 2021 to early 2022, we could still see an increase in bankruptcies for this particular group,” Collins said.
In addition to bankruptcies, other factors can indicate economic distress, Collins said.
For example, mortgages, student loans, or auto loans can be potential indicators of the current economic situation. Collins said there had also been no increases in those categories, which may be due to loan holidays granted by lenders.
“When we think of Madison specifically, we have a pretty good economy,” Collins said. “We have a lot of people in jobs that can easily be done from home, but we also have a lot of service workers. It really is the story of two cities.