What to do When Facing Bankruptcy During the Coronavirus Pandemic


“Bankruptcy is about financial death and financial rebirth. Bankruptcy is the great American story rewritten. We’re a nation of debtors.” – Elizabeth Warren

Are you considering filing for bankruptcy during the current global pandemic? Is it because you have been laid off or furloughed so that you are unable to meet your monthly debt repayments? 

Bankruptcy during COVID-19

Debt.org provides a comprehensive explanation of why bankruptcy in the USA occurs. In summary, most bankruptcy cases are not caused by overspending and reckless spending. They can be attributed to financial hardship where people cannot with unexpected expenses attributed to unemployment and expensive medical bills. 

And, this description gives us a clear indication of why the number of potential bankruptcy cases will increase during the COVID-19 pandemic. 


The answer to this question, as presented by the Toledo bankruptcy attorney, is that 50% of the world’s population is currently at home under varying degrees of a lockdown or stay-at-home orders. All non-essential businesses have been closed. And those businesses whose staff who can work from home, are doing so. Therefore, people cannot afford to service their debts.

The US unemployment figures have risen exponentially as the COVID-19 pandemic drags on. CNN business notes that there have been over 30 million US unemployment claims since the middle of March 2020. Most of these people have been furloughed or laid off as a consequence of country-wide shutdowns. And Torsten Slok, chief economist at Deutsche Bank Securities, believes that the unemployment rate reached its peak of 16.1% in April 2020.

What is Force Majeure? 

The next question that begs is, how do people navigate this economic environment? Can an individual declare force majeure? Or, will they be forced into filing for liquidation? 

Wikipedia.com defines force majeure as a “common clause in contracts that… frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties… prevents one or both parties from fulfilling their obligations under the contract.”

These extraordinary circumstances include events like “a war, strike, riot, crime, epidemic or an event described by the legal term act of God” In theory, it is clear that the COVID-19 pandemic fits the definition in that it is a global epidemic. 

Businesses can declare force majeure when they cannot honour legal contracts with suppliers as well as their employment contracts with their employees. It is also worth noting that declare force majeure does not necessarily mean that the business does not have to honour its financial, contractual obligations. All that happens is that the due dates of these contracts do not have to be met. The business will more than likely have to pay its suppliers and employees. Therefore, it’s a case of when and not if. 

Final words

Finally, there is not much information available on whether individuals can declare force majeure. The most obvious answer seems to be that it depends on the contract. Therefore, if you cannot declare force majeure, the next best route to follow is to file for bankruptcy.

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