COVID-19’s Impact on Low-Income Families Filing Bankruptcy
The COVID-19 pandemic exposed severe financial vulnerabilities among low-income families, with medical debt doubling to $14,866 and average student loan balances reaching $66,476—69% higher than the national average. Without meaningful bankruptcy reform for student loans and systemic changes to wages and healthcare access, the "fresh start" bankruptcy promises remains out of reach for millions of struggling Americans.
Get Free ConsultationEverything changed in 2020. The coronavirus pandemic devastated our economy and pushed millions to financial ruin. Over 535,000 Americans died, with global deaths exceeding 2.6 million by March 2021.
The pandemic’s longest-lasting effect will be the financial fallout.
Eliminate Medical Debt Through Chapter 7 Bankruptcy
Medical debt doubled during COVID-19, averaging $14,866 for people seeking relief. Chapter 7 bankruptcy can discharge medical bills and credit card debt. Find out if you qualify for a fresh start today.
Check Your EligibilityMillions already living paycheck to paycheck lost their jobs. Others walked away from unsafe workplaces. When stimulus money ran out, people already on the brink faced complete financial collapse.
Income Inequality Magnified
Billionaires added $1.1 to $1.3 trillion to their wealth during the pandemic. Meanwhile, millions of Americans lost jobs and fell behind on rent and mortgage payments.
More than 54 million people faced food insecurity due to the pandemic. That’s twice the population of Texas.
Employment numbers, student loans, and medical bills dominated the news early on. A year later, people still struggle with unpayable hospital bills. We’ve simply stopped paying attention.
What We Learned From 18,900 People Considering Bankruptcy
Since March 2020, we’ve surveyed more than 18,900 individuals considering bankruptcy. These folks face overwhelming debt with limited income and few assets.
Uncertainty about their future makes filing bankruptcy more difficult than ever. If you earn no income and own no property, what can creditors take? If debt keeps piling up, why use your fresh start now?
Without an adequate social safety net, bankruptcy offers little hope for long-term stability. Low-income families, especially families of color, remain in perpetual near-insolvency.
Most respondents earn below the median income in their state. They have over $10,000 in dischargeable debt and less than $10,000 in assets.
Women Are 1.6x More Likely to Consider Bankruptcy
Since March 2020, 63.9% of survey respondents are white. 19.2% identify as Black or African American, and 10.9% as Hispanic or Latino.
Across all races, women are 1.6x more likely to consider bankruptcy. Black respondents are 2.2x more likely to be women. Latinx respondents are 1.2x more likely to be women.
Indiana Shows Surprisingly High Bankruptcy Interest
Most respondents come from the 10 most populous states: California, Florida, Texas, Ohio, and New York.
Indiana is an outlier. It ranks 17th in population but 8th for people considering bankruptcy. Indiana residents accounted for 3.48% of all respondents over 12 months.
One possible reason: Indiana protected only stimulus payments, not other income. The state didn’t suspend wage garnishments or other debt collection activities.
Indiana’s poverty rate sits above the national average at 11.9%. The decision not to extend protections disproportionately impacts the state’s poorest residents.
Amazon and Walmart Employees Face Financial Distress
Employed respondents are 3.58x more likely to work for Amazon. They’re 2.44x more likely to work for Walmart than the average American.
Despite working for the world’s wealthiest corporations, they cannot make ends meet.
Until Congress passes a meaningful minimum wage increase, workers will continue navigating life on a financial cliff. The problem will worsen when a year’s worth of rent and student loan payments come due.
Average Savings Total Just $512
The average respondent owns less than $10,000 in assets. Most have a combined total of $512 in checking and savings accounts.
For many, their vehicle is their most valuable asset. Vehicle ownership often comes with high monthly car payments.
Average Monthly Income Sits 53% Below National Median
Of the 2,000 people who completed the income section, average expected monthly income is $2,708.61. The median income is $2,538 per month.
The national median income in 2020 was $5,725.25 per month. Respondents earn 53% less than this amount.
Black respondents cite job loss more often than white respondents. Since June 2020, Black men cited job loss over 50% of the time (except September). Speaking with a bankruptcy attorney for free can help you understand your options during job loss.
The number peaked in November when Black men cited job loss over 62% of the time.
New Hampshire has the highest percentage citing job loss at 45.3%. Nevada follows at 45% and California at 44.1%.
Medical Debt Has More Than Doubled
As of March 2020, the average medical debt was $7,104. A year later, the average medical debt is $14,866.
That’s more than double in just 12 months.
21.4% of Black respondents cited medical bills as a reason for filing in March 2020. By March 2021, this increased 1.5x to 31.8%.
Although men carry higher average medical debt, women cite medical bills more often. Over 12 months, 33% of female respondents and 27% of male respondents cited medical bills.
Black women were 1.24x more likely than Black men to struggle with medical bills. 34.1% of Black women and 27.4% of Black men cite inability to pay medical bills.
Medical Debt Leads People to Avoid Healthcare
When people cite medical bills as a bankruptcy reason, they also avoid medical care to cut expenses.
Medicaid Expansion Rejection Makes Things Worse
Missouri and Oklahoma adopted but didn’t implement the Affordable Care Act’s Medicaid expansion. Twelve states didn’t adopt it at all: Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming.
In Wyoming, 69.9% avoided necessary medical care before filing. 72.6% cited medical bills as a filing reason.
In South Dakota, 58.6% avoided necessary medical care. 67.1% cited medical bills as a filing reason.
More than half of all respondents from Kansas, Oklahoma, South Dakota, and Missouri avoided necessary medical care. More than half from Kansas, South Dakota, and Wyoming cited medical bills as a bankruptcy reason.
The Student Loan Crisis Hits Hardest
As of February 2021, there are $1.71 trillion in outstanding student loans. These loans burden 47.9 million borrowers.
$124.4 billion of student debt is in default. Over a million student loans enter default status each year.
Student loan default affects 9 million borrowers and their families at any given time.
Student Loan Debt Is 69% Higher Than National Average
Of the 6,368 people surveyed about student loans, 51% reported having student loan debt. The average amount owed is $66,476.
The national average for student loan borrowers is $39,351. The median balance among respondents is $34,210.
Under current bankruptcy law, eliminating student loans is extremely difficult. Decades of selective litigation by the student loan industry made it seem impossible.
Navigating an adversary proceeding to discharge student loans is complicated even with a lawyer. When you can’t afford a lawyer, it seems insurmountable.
The cruel irony: debtors facing “undue hardship” are least likely to afford the lawyer they need.
Black Men Carry the Highest Average Student Loan Debt
57.4% of respondents with student loan debt are white. 28.1% are Black or African American.
Among respondents with student loans:
- Black men owe the highest average amount at $77,950.89
- Black women average nearly the same at $77,549.95
- Women owe more on average than men
- Asian men owe the lowest average at $46,304.41
Nationally, women hold 58.8% of student loan debt. Women still earn less than a dollar for every dollar men earn.
Federal student loans in default can result in garnishment of protected funds. Tax credits and social security income can be seized. The financial burden often affects the borrower’s dependents.
Bankruptcy Won’t Eliminate 31.4% of Total Debt
For the average respondent with student loans, student debt makes up 31.4% of total debt. Close to a third cannot be discharged during bankruptcy.
For Black respondents, this number is higher. 38.5% of their overall debt is tied to student loans.
Even after discharge, they cannot access the fresh start bankruptcy promises. Looking at the staggering balances remaining post-bankruptcy, bankruptcy reform must be part of student loan relief.
Systemic Change Is Needed
The coronavirus pandemic exposed inequities in our social structures. Black Americans are more likely to contract and die from the virus.
Decades of economic and educational inequities worsened over 12 months. Recovery will be difficult.
Stopgap debt relief measures won’t help most people meaningfully improve their lives after bankruptcy. Student loan moratoriums and temporary aid programs aren’t enough.
All employers must pay a living wage based on local cost of living. We must provide health insurance and access to affordable healthcare.
It cannot be that in the “greatest nation on Earth,” so many forgo necessary medical care. Parents shouldn’t work multiple jobs only to spend everything on childcare expenses.
Without attainable bankruptcy relief for student loans, the fresh start doesn’t set people up for success. Instead, they’re left with tens or hundreds of thousands in student loan debt for years to come.