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The number of Chattanoogans going broke last year plunged by nearly 38% from the previous year as government stimulus measures cushioned the economic decline triggered by the coronavirus pandemic.

Despite an increase in business bankruptcies last year from such companies as CBL Properties, J.C. Penney and Pier One, consumer bankruptcy filings in the Chattanooga District of the U.S. Bankruptcy Court fell in 2020 to the lowest level in more than 25 years.

"Continued government relief programs, moratoriums and lender deferments have helped families and businesses weather the economic challenges over the past year resulting from the COVID-19 pandemic," said Amy Quackenboss, executive director for the American Bankruptcy Institute which calculates that bankruptcy filings nationwide dropped 30% during 2020.

With a moratorium on some type of foreclosure and record levels of jobless benefits paid to unemployed workers last year, fewer consumers were forced to seek bankruptcy protection from their creditors. Although Chattanooga's jobless rate jumped to a record high 13.3% last April when the pandemic first hit the region, Congress offset the income losses from such cutbacks by providing $2.2 trillion of extra federal aid to employers, consumers and unemployed Americans from the CARES (The Coronavirus Aid, Relief, and Economic Security) Act approved by Congress in March.

Chattanooga bankruptcy filings

The number of cases filed in the U.S. Bankruptcy Court in Chattanooga fell last year by 37.7% to the lowest level in more than 25 years.

2020 - 3,417

2019 - 5,488

2018 - 5,904

2017 - 6,011

2016 - 5,689

2015 - 5,747

2014 - 5,882

2013 - 6,515

2012 - 6,640

2011 - 7,273

2010 - 7,357

2009 - 8,487

2008 - 7,252

2007 - 5,782

2006 - 4,630

2005 - 8,673

2004 - 8,392

2003 - 8,819

2002 - 8,392

2001 - 8,446

2000 - 7,076

Source: Chattanooga division of the U.S. Bankruptcy Court for Eastern Tennessee

Tennessee and Alabama, however, continued to lead the nation for the highest per capita rate of bankruptcy filings with filings more than double the U.S. average in both states. In Tennessee, one of every 295 persons filed for bankruptcy during 2020, compared to only one of every 585 persons nationwide.

As non-judicial foreclosure states, creditors are more easily able to garnish wages or foreclose on indebted properties in Tennessee and Alabama, leading to more bankruptcy protection filings to avoid the loss of homes, cars or other assets.

Larry Ahern, a veteran bankruptcy attorney since 1972 who teaches bankruptcy law at Vanderbilt University, said the decline in filings last year was due to the unprecedented federal relief package approved by the Congress in March to help prop on the economy and aid those hurt by the virus.

"I think the decline can all be traced to the various aspects of the stimulus package, which provided additional jobless benefits, direct payments and forgivable loans for many small businesses to allow more people to stay on their feet and avoid having to seek bankruptcy protection," he said.

Top bankruptcy states

Although down from previous years, the per capita rate of bankruptcy filings in Alabama and Tennessee were more than double the U.S. rate of 1.71 bankruptcy filings per 1,000 persons during calendar 2020.

1. Alabama, 3.85 filings per 1,000 persons

2. Delaware, 3.62 filings per 1,000 persons

3. Tennessee, 3.39 filings per 1,000 persons

4. Nevada, 2.94 filings per 1,000 persons

5. Mississippi, 2.85 filings per 1,000 persons

Source: Data compiled by Epiq Systems for the American Bankruptcy Institute.

Eron Epstein, a bankruptcy attorney for nearly 40 years in Chattanooga, said last year's drop was the biggest since 2006 when bankruptcy reforms adopted in 2005 temporarily swelled the number of bankruptcy filings in late 2005 before falling nearly in half the next year in Chattanooga.

"We've survived these kinds of swings before, but this was an extraordinary year with all of the extra payments and assistance provided by the government and the moratoriums on many evictions and foreclosures which eased some of the immediate reasons people may choose to file for bankruptcy," Epstein said. "We're still expecting by the third quarter of this year that filings may return to more normal levels as some of the short-term stimulus measures are exhausted. But it depends a great deal on what the new administration and Congress opt to do."

Unemployment benefits for jobless Tennesseans, which traditionally pay no more than $275 a week for laid off workers seeking other jobs, rose to $875 a week through part of 2020 with a $600-a-week federal supplement. That left some unemployed persons actually making more than they did when they were working.

The $600-a-week federal supplement ended in July, but Congress authorized another $300 a week in federal jobless benefit supplements through mid March to aid those still unemployed due to the pandemic.

The Paycheck Protection Program also provided forgivable Small Business Administration loans to thousands of Tennessee businesses to keep them afloat while many were forced to close last spring. The CARES package also provided short-term protections against evictions or loan foreclosures against delinquent creditors. The government also handed out stimulus checks to all Americans last spring and again this winter.

At the same time as the government helped prop up the economy, consumers cut back on spending on travel, eating out, entertainment and other social events due to the virus. That helped boost savings and limit expenses for those with reduced incomes. The Federal Reserve Board also eased monetary policy to help lower interest rates, allowing many homeowners to refinance their mortgages or other debt at lower borrowing rates.

According to data compiled for the American Bankruptcy Institute, total bankruptcy filings nationwide fell from 757,634 in 2019 to 529,071 filings during calendar year 2020.

Annual bankruptcy filings last registered a similar total in 1986, with 530,438 total filings, and the 30 percent drop from 2019-20 is the second-largest percentage decrease since the 70 percent drop in filings recorded in 2006. That decrease was the result of the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which prompted total bankruptcies to rise to 2,078,415 ahead of its enactment then fall to 617,660 total filings in 2006.

Despite the drop in consumer bankruptcy filings last year, the number of commercial Chapter 11 bankruptcy filings entered in the Chattanooga bankruptcy court still doubled last year to 16 such filings, up from eight local Chapter 11 filings in 2019.

Nationwide, commercial chapter 11 filings increased 29 percent during calendar year 2020 to the highest total since 2012. Business Insider counts at least 38 retail chains and 12 national restaurant businesses that filed for bankruptcy during 2020 due to cutbacks caused by the coronavirus.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.

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