Lending A Helping Hand?
But structuring this economic assistance as a loan, whether subject to forgiveness or not, holds potentially dire consequences over time – consequences that have not been made clear to the American public but which, I’m sure, are all too clear to our College membership.
After the worst of the public health effects from the coronavirus pandemic have receded, every EIDL borrower and some recipients under the PPP, every obligor under a student loan with deferred interest obligations, every residential mortgagor and tenant whose foreclosure or eviction has been stayed by virtue of federal law, will have to figure out how, in the uncertain economic context of recovery from a pandemic, they will pay back all this debt.
The economic rebound we hope to occur later in 2020 may be sufficiently swift and strong to enable this borrowing to get repaid, at least in part. But because I’m a bankruptcy lawyer, I tend to focus on the worst-case scenario contained in this half-empty glass – the near certainty that many will default in the wake of our slow emergence from this pandemic. Fewer than all U.S. borrowers (whether large businesses, small businesses or individuals) will be able to make their lenders whole in a timely fashion. And absent additional deferment and forbearance, this worst-case scenario thinking leads me to the conclusion that bankruptcy filings will increase over time – substantially. For many, in other words, the federal government’s “helping hand” will later feel more like a slap in the face.
As bankruptcy practitioners, bankruptcy judges and scholars focused on bankruptcy law, our College membership will confront the reality of the scale of devastation left in the wake of this pandemic. The scale of the economic effects of the pandemic has led some to describe future increases in bankruptcy filings as a possible tsunami.16 Whether measured as an ebb tide or a tsunami, increasing bankruptcy filings are likely to have longstanding implications for all members of the College – buckle your seat belts, we’re in for a wild ride in the next few economic quarters.
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16Bob Lawless, A Coming Consumer Tsunami, Wave or Ripple?, CREDIT SLIPS (April 16, 2020), available at https://www.creditslips.org/creditslips/LawlessAuthor.html ; see also Jay Lawrence Westbrook, The Role of Chapter 11 Bankruptcy in Addressing the Consequences of COVID19, CREDIT SLIPS (April 27, 2020), available at https://www.creditslips.org/creditslips/2020/04/the-role-of-chapter-11-bankruptcy-in-addressing-the-consequences-of-covid19.html.
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