Personal bankruptcies fall in La Crosse, but a wave may be coming

The number of personal bankruptcies is down significantly in La Crosse County for the past three months compared to the same period in 2019, likely a sign that increased jobless benefits and other federal support helped many weather the worst of the economic storm brought on by the pandemic.

From the start of May through July, 36 personal bankruptcy cases from La Crosse County were filed in the U.S. Bankruptcy Court for the Western District of Wisconsin. For the same period in 2019, 56 cases were filed, an analysis by The La Crosse Independent found.

Bankruptcies are a bellwether for economic distress. They also paint a detailed picture of the causes of financial pain for many families. Not surprisingly, 25 of the 36 bankruptcy cases filed by La Crosse County residents in the past three months feature medical debt, which has long been one of the leading factors in pushing people over the financial edge in the U.S. Twenty of those 25 cases included either Gundersen or Mayo, or sometimes both, as creditors, public court records show. 

Those filing for bankruptcy often owe debts to multiple health care providers. In one local case filed in May, a person who filed for bankruptcy had 11 separate health care providers they owed money to, ranging from an ambulance company to Mayo, Gundersen, and several residential care providers. 

Still, medical debt was usually only part of the story for the individuals filing for bankruptcy locally. In most cases, health care providers were among an often lengthy list of other creditors, such as payday loan credit card companies and various other financial institutions.

Several of the local cases also included debt related to student loans, which are more difficult to discharge in bankruptcy than other debts, as debtors must pass a legal test that proves their student debt would pose an “undue hardship.”

Record household debt

Americans entered the Covid-19 pandemic with the highest amount of household debt in history and generally stagnant wages for all but the highest earners. That debt could have triggered a wave of bankruptcies when Covid-19 shut the economy down, sending the unemployment rate surging to 14.7 percent in April. The fact that has not happened, with personally bankruptcies actually falling nationwide in the second quarter, points to the success of the massive federal intervention in the economy. 

Lawmakers approved bills boosting unemployment checks by $600 a week near the start of the pandemic, which meant some made more than when they had a job, providing financial breathing space. Most Americans received stimulus checks of $1,200 (although in some cases, those checks were taken by banks and debt collectors before reaching recipients). Foreclosures and evictions were also halted, and federal small business loans propped up many companies. Most of those programs have now expired. Critically for those without work, the $600 in additional unemployment benefits has been halved to $300 a week and it’s uncertain how long that will last. So far, congressional leaders have been unable to agree on a new relief package.

Without new federal relief, and with municipal and state governments facing a dire fiscal outlook due to the recession, many are predicting that personal bankruptcies could soon begin to surge nationwide. Three of the nation’s biggest banks – JP Morgan Chase, Citigroup and Wells Fargo – certainly think so. The banking heavyweights put aside a combined $25 billion in the second quarter to deal with expected losses on loans in the coming months, a clear sign they think many Americans will be unable to keep up with their bills without renewed federal support. Also preparing for a coming storm in the fall are bankruptcy attorneys.

“Tsunami, hurricane, flood, bloodbath … there are a variety of words you could use,’’ Miami-based bankruptcy attorney Joe Pack told last month. “It’s not going to be good.’’

By Eric Timmons. Email questions to Top photo of downtown La Crosse by Bohao Zhao/CC BY 3.0.

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