The unemployment rate in America has spiked due to the COVID-19 (coronavirus) pandemic and the measures taken to slow its spread. Officially, the unemployment rate in America is 14.9%. However, some economists estimate that it may be as high as 23.6% once freelancers, independent contractors, and gig workers are included in the calculation.
This rate has nearly tripled since the coronavirus stay-at-home measures went into effect in mid- to late-March. The rapidity of the shift in the labor market has been disturbing but may also be an aberration that can be corrected. Here are ten ways to interpret the unemployment rate in America:
The Economic Fundamentals Might Remain Sound
The sudden drop in demand for labor and the increase in the unemployment rate in America was not due to a financial crisis or recession. A recession occurs when the GDP growth is negative for at least two consecutive quarters. Rather, it was due to a health crisis that required local and state governments to impose restrictions that forced many businesses to temporarily close.
For example, since COVID-19 is spread through respiratory droplets, dining in a restaurant, traveling via an airplane, and standing in line at a theme park significantly increased both the likelihood of transmission and the number of people who could be infected by a single carrier. These businesses correctly chose to shut down or significantly cut their services to minimize the risk of an outbreak.
The pandemic had a severe impact on the unemployment rate because these businesses did not need their employees when their services were cut or shut down. As a result, these employees were furloughed. While this enabled them to collect unemployment benefits, this also meant that they would not receive their pay.
However, many, if not most, if these employees will have a job when these businesses ramp up their operations as they begin to reopen. In other words, while the unemployment rate in America is high, it might not remain at that level when the pandemic ends.
As a result, you might be jumping the gun if you immediately consult with a chapter 13 bankruptcy attorney to request bankruptcy protection. Instead, as long as it appears that you will regain your job and are able to receive unemployment benefits, it may be worthwhile to try to wait out the stay-at-home orders and furlough before attempting to file for bankruptcy.
The End of Stay-at-Home Orders Might Not End the Slump
However, one open question is how quickly economic demand will rebound after stay-at-home orders end. There is no way to tell if consumers will immediately return to their pre-pandemic level of consumption once they are permitted to do so.
Consumers might avoid certain businesses after they reopen due to their perception of risks associated with them. For example, consumers might choose not to patronize movie theaters, nightclubs, and theme parks because of the risks of being in close proximity to other people. Similarly, hotels, casinos, and air travel might take time to recover because of the difficulties in cleaning these businesses.
For employees who work for these businesses, it might be prudent to look for alternate employment. However, since demand for labor is so depressed, finding a different job may be difficult or impossible and it may be necessary to consult a bankruptcy lawyer.
Bankruptcy is a process authorized in the U.S. Constitution for the orderly payment of debts by a debtor who is unable to pay everything owed. For example, a debtor who has a mortgage, car loans, and credit cards but has been furloughed might be unable to meet all the debtor’s obligations. By entering bankruptcy, the debtor is protected from lawsuits or other attempts by the creditors to collect the debts.
The benefit of bankruptcy is that debts are repaid to the extent possible, then the debts are discharged. Stated differently, the bankruptcy court approves a plan that usually only repays a portion of the debts and, having received this repayment, the debts cease to exist.
The drawback of bankruptcy is that bankruptcy can destroy your credit. A chapter 7 bankruptcy remains on your credit history for up to ten years, while a chapter 13 bankruptcy remains for up to seven years. Moreover, your credit score might drop to a fair or poor rating, allowing banks to deny any form of credit product including mortgages, car loans, and credit cards, until you rehabilitate your credit score.
Bankruptcy Might Be the Only Choice for Some Workers
With all that said, bankruptcy might be the best choice for low income workers. For example, if a three month furlough will result in three months of unpaid bills, workers who live from paycheck to paycheck might never catch up.
These workers might consider chapter 7 bankruptcy. In a chapter 7 bankruptcy, eligible assets are sold off and the proceeds are used to discharge the debts. However, no payment plan is negotiated and eligible debts are discharged after the assets are liquidated.
This process helps debtors who have few assets and too much debt for their income. Certain assets, such as tools necessary for the debtor’s job, are protected. This allows a debtor with few assets and little income to start anew, free from the discharged debts.
However, there are a few considerations in a chapter 7 bankruptcy:
- Some debts, like student loans, alimony, and tax liens, cannot be discharged in a chapter 7 bankruptcy.
- A chapter 7 bankruptcy will stay on your credit history longer than a chapter 13 bankruptcy.
- Assets that can be liquidated include real estate that is not your primary residence, investments, collectibles, jewelry, and artwork.
Temporary Relief is Available
Alternatively, local, state, and federal programs have temporarily suspended evictions and foreclosures. Since evictions and foreclosures are enforced through the courts, governments can simply choose not to adjudicate or enforce eviction or foreclosure orders.
With the pressure of becoming homeless removed, you may merely need to negotiate or restructure your debts until the unemployment rate in America drops and you regain your job. In other words, rather than consulting a bankruptcy attorney, you may need a debt relief attorney.
A debt relief attorney negotiates your debts and attempts to find a repayment plan that you can meet and will satisfy your creditors. For example, some debts, like unpaid credit card bills, are unsecured. This means that there is no collateral that the creditor can seize for repayment of the debt. Since these debts are unsecured, these creditors are sometimes willing to accept less than the full amount of the debt to settle it. For example, some credit card companies are willing to cut anywhere from 20% to 50% off the credit card balance to satisfy the debt and close the credit card account.
Conversely, other debts, like mortgages and car loans, are secured by collateral. These creditors are allowed to seize the collateral and sell it to satisfy the debt. However, even with a secured loan, an attorney might be able to negotiate a reduction or payment plan.
Why? Foreclosure and repossession cost the creditor time and money. Moreover, any defect in the loan agreement might lead a judge or jury to release you from the loan without repaying anything. As a result, creditors might prefer to keep you paying your loan rather than pushing you into bankruptcy or forcing them to foreclose or repossess. While the unemployment rate in America remains high, these companies understand that they could quickly become overwhelmed by defaulted loans and the costs of collecting them.
Some Businesses are Voluntarily Delaying Payments
Because businesses understand that the pandemic has created cash flow problems for many of their customers, and because of the cost of collecting on unpaid bills, some businesses are voluntarily deferring payments during the pandemic. Some examples of companies that have chosen to allow late payments include automobile insurance companies and utilities. Additionally, federal legislation paused payments for student loans.
Keep in mind, however, that unless you cancel your service, you will still owe the missed payments. The pause in payments only allows you to miss your payment due date without being assessed penalties or defaulting on your obligations. For example, some auto insurance companies have announced that they will not cancel auto insurance policies for non-payment during the pandemic while the unemployment rate in America remains high. This allows you to retain your auto insurance rather than being cancelled for nonpayment and having to seek other auto insurance options without any income to pay for it.
Other memberships or passes, like gyms and amusement parks, have acknowledged that members are unable to use their memberships while these businesses are closed. Many of these businesses have paused payments, extended the membership duration, or allowed members to cancel without penalty.
Government Checks are Available
The federal government’s CARES Act provided direct cash assistance to all adults Americans making less than $99,000 or couples making less than $198,000.
Any disability advocate will also point out that Americans who receive Social Security or other governmental assistance are eligible for these stimulus checks.
The amount of the checks depends on income level, but any American making up to $75,000 or couple making $150,000 will receive a check for $1,200 per adult and $500 per dependent child. Above those levels, the amount begins to decrease.
State Unemployment Benefits Have Been Expanded
The federal government has supported states to expand unemployment benefits. Under normal circumstances, independent contractors, gig workers, and the self-employed are not eligible for unemployment benefits. However, with the unemployment rate in America reaching levels not seen since the Great Depression, the federal government realized that these workers could create a huge gap in the economy if they were allowed to default on their bills, become homeless, or go hungry.
As a result, the federal government created the Pandemic Unemployment Assistance (PUA) program. This program reimburses states for paying unemployment benefits to those otherwise ineligible for benefits. Under the PUA, almost everyone, from rideshare drivers to physical therapy aides, could receive unemployment benefits.
The PUA benefits were limited in duration however, because they expanded eligibility, it is hoped that they will help support the economy by keeping families in their homes and circulating the benefits money through the economy.
Unemployment Benefits May End If You Refuse to Return to Work
There are some states that have determined that a refusal to return to work, even before the pandemic is under control, may be treated as a voluntary “quit.” This is an important classification because people who voluntary quit their jobs are not eligible for unemployment benefits.
Thus, even if an employer furloughed you as the unemployment rate in America spiked and forced you onto unemployment by terminating your pay, you will be treated as if you voluntarily quit, and your benefits will end, if your employer reopens and you refuse to return. This could be a major problem for workers who are vulnerable to illness, have pre-existing conditions, or work in especially dangerous fields. In effect, these states will make you choose between your health and your job.
While this program is still in its very early stages, if you have your benefits terminated, it may be worth a meeting with a lawyer with legal experience in administrative law. It may be possible that under your state’s laws, you may have a right to appeal the loss of your unemployment benefits.
Your Employer May be Immune if You Get Coronavirus at Work
Complicating things even more, if you get coronavirus at work, you may be limited in your ability to receive compensation for your illness. Some states permit you to file a workers compensation claim if you contract COVID-19 at work. However, these benefits are often limited to first responders and health care workers. If you work at a fast food restaurant, for example, workers compensation might be unavailable.
Worse yet, the U.S. Congress is debating whether to restrict workers’ ability to sue their employers for coronavirus exposure. Even if your employer acted recklessly in reopening, failed to provide you with personal protective equipment (PPE), or refused to implement social distancing guidelines.
If you are exposed to coronavirus at work and contract the disease, you might want to schedule a legal consultation so you can determine whether you have any rights against your employer.
Business Owners Might be Eligible for Government Loans
The CARES Act also included assistance for small businesses. Two programs, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, allowed small businesses to apply for loans from the U.S. Small Business Administration (SBA). These loans could be forgiven if the funds are used for specific purposes, such as paying employee salaries.
However, these programs have many rules covering eligibility and loan forgiveness. If you choose to apply for these loans, you should consult a business attorney to determine the ramifications for your business.
The unemployment rate in America is high, but there are reasons to be optimistic. The growth in the unemployment rate has slowed and the fundamentals of the U.S. economy may prevent a total collapse. More importantly, local and state governments have implemented assistance policies and programs to support unemployed workers and minimize the risk of bankruptcy. Once the pandemic and the stay-at-home orders wane, consumers may again drive an economic expansion.