Fewer Chattanoogans are going broke this year, at least so far.
With bankruptcy court operations limited by the coronavirus this spring and government stimulus measures offering short-term relief to many, the number of bankruptcy filings in Chattanooga dropped in the first half of 2020 by nearly a third from the same period last year.
Despite a projected surge this year in business bankruptcies spurred by coronavirus shutdowns, the number of individual Chattanoogans seeking bankruptcy protection fell to less than half the number in the previous downturn during the Great Recession of 2008-2009, according to filings at the Chattanooga office of the U.S. Bankruptcy Court. Consumer bankruptcy filings were the lowest since the current bankruptcy rules were adopted in 2005.
Although unemployment jumped in Chattanooga during April to a post World War II record high of 13.3%, fewer people sought bankruptcy relief this spring. Economists credit the $2.2 trillion federal stimulus package adopted by Congress in response to the COVID-19 pandemic for limiting the economic dislocation caused by the shutdown of much of the U.S. economy. Aided by the most generous jobless benefits ever offered, unemployed persons this spring were given an extra $600 a week in federal benefits, boosting the average weekly jobless benefit paid in Tennessee to over $825 a week.
"As much as two thirds of those getting unemployment benefits had an income increase from being laid off (with the extra federal jobless benefits), so a lot of low-income persons who were hit hardest by the pandemic ended up being better off financially for three or four months and that resulted in fewer bankruptcies," said Dr. Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee. "That was a good outcome, but it's not sustainable to maintain these levels of benefits for the long term."
Fewer Chattanoogans going broke
In the first six months of the year, bankruptcy filings in Chattanooga court fell by 31.4%% from year ago to the lowest level in more than two decades. Bankruptcy filings in Chattanooga this year are down 57.5% from the peak reached 15 years ago.
2020 - 1,896
2019 - 2,763
2018 - 2,941
2017 - 3,017
2016 - 2,781
2015 - 2,830
2014 - 2,892
2013 - 3,269
2012 - 3,402
2011 - 3,605
2010 - 3,792
2009 - 4,110
2008 - 3,277
2007 - 2,631
2006 - 2,046
2005 - 4,458
2004 - 4,233
2003 - 4,441
2002 - 4,089
2001 - 4,163
Source: U.S. Bankruptcy Court, Chattanooga division
Bankruptcy filings also may have been limited, or at least delayed, by the suspension of service disconnections for payment delinquencies by most utilities and by forbearance on evictions for many renters or delinquent mortgage borrowers.
Nationwide. total bankruptcy filings in the first six months of 2020 were down 23% from the previous year. Alabama, Tennessee and Georgia continued to be among the top states in the U.S. in the share of persons filing for bankruptcy, according to figures compiled by the American Bankruptcy Institute.
The president of the Federal Reserve Bank of Atlanta, which serves many of the southern states hardest hit by the mortgage crisis of the Great Recession, told a Tennessee business group last week that the fiscal and monetary stimulus provided by Congress and the Federal Reserve Bank helped sustain many businesses and households when much of the economy was forced to shutdown to control the coronavirus.
"Going into this, the economy was fundamentally strong and solid," said Dr. Raphael Bostic, the head of the Atlanta Fed "We knew if we could retain those fundamental strengths, we could expect the rebound to be stronger and more robust when we come out of this."
But Bostic said a second wave of COVID-19 cases and the end of many of the short-term stimulus measures could make the path to economic recovery "a bit bumpier" that first projected.
Top filing states
In the first six months of 2020, the states with the highest per capita bankruptcy filings were:
1. Alabama, 4.46 filings per 1,000 residents
2. Delaware, 3.89 filings per 1,000 residents
3. Tennessee, 3.88 filings per 1,000 residents
4. Mississippi, 3.49 flings per 1,000 resident
5. Georgia, 3.25 filings per 1,000 residents
Source: American Bankruptcy Institute
While the number of consumers going broke has dropped, businesses hit by the coronavirus are seeking bankruptcy relief in record numbers.
Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.
Major retailers like JC Penney, J. Crew, Neiman Marcus and Brooks Brothers filed to bankruptcy this spring after shutdowns ordered to limit the spread of the coronavirus limited sales and kept consumers away from stores.
Even a meaningful rebound in economic activity over the coming months won't prevent more bankruptcies, according to Altman, a professor of finance at New York University's Stern School of Business.
"The really hurting companies are too far gone to be saved," he told The New York Times.
Total commercial chapter 11 bankruptcy filings during the first six months of the year nationwide increased 26% to 3,604 from the 2,855 total filings during the same period in 2019, according to data provided by Epiq.
"Businesses and consumers continue to navigate a challenging economic course as a result of the financial crisis due to the COVID-19 pandemic," said Amy Quackenboss, executive director for the American Bankruptcy Institute. "As government lifelines to help stabilize the economy begin to expire, bankruptcy provides a shield for households and companies facing intensifying financial distress. We anticipate filings to begin increasing as a result."
Contact Dave Flessner at email@example.com or at 423-757-6340.