WASHINGTON Despite record unemployment numbers, consumer bankruptcies declined last month by more than 30 percent compared with last year, according to American Bankruptcy Institute data.

Thats because federal courts largely have closed and consumers usually file for bankruptcy after theyve hit rock bottom, not in the middle of a crisis, said Bob Lawless, a law professor at the University of Illinois.

People are probably going to use consumer credit to smooth over the problems they have right now, he said. It doesnt make sense to file bankruptcy if you are just going to continue to pile up debts.

If Congress fails to act soon, bankruptcy courts could be overwhelmed by a record number of newly jobless consumers looking to shed crushing debts, said Raymond Kluender, an economist at the Harvard Business School.

More than 20 million people filed for unemployment in April.

Some research indicates there could be 10 or more bankruptcy cases for each additional 1,000 job losses meaning 200,000 people eventually could end up filing for bankruptcy based on Aprils numbers alone, Kluender said.

If the economic crisis continues, bankruptcy filings could eclipse those sparked by the Great Recession, which peaked at more than 1.5 million filings in 2010.

The actual capacity of the court system to process and adjudicate bankruptcy filings is quite fixed, and we have to start to think about what 20 or 30 million unemployed is going to mean, Kluender said.

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Earlier this month, the Administrative Office of U.S. Courts requested more than $36 million in additional appropriations.

That would include funds to turn 14 temporary bankruptcy judgeships into permanent spots and to extend deadlines so courts can handle an expected increased caseload.

The economic impact of the COVID-19 pandemic in some respects exceeds that of the 2008 Great Recession, the office said in a letter to congressional leaders.

Congress so far has stayed quiet on the issue, outside of a proposal by Democratic Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio. The pair last month called for the next coronavirus relief package to include changes that would make consumer bankruptcy a more accessible, affordable option.

In a letter posted to Medium, the two senators called for lowering filing fees, reducing paperwork, getting rid of in-person requirements, and allowing student loan debt to be discharged in bankruptcy proceedings.

But Senate Majority Leader Mitch McConnell questioned the need for another pandemic relief package.

Were basically assessing what weve done already, he told reporters Monday, saying he was in constant communication with the White House.

If we decide to go forward, well go forward together. And in the meantime, I dont think we have yet felt the urgency of acting immediately. That time could develop, but I dont think it has yet.

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Congress may be forced to deal with wave of bankruptcies - The Gazette