Staff file photo / The U.S. Bankruptcy Court building on East 11th Street is shown on Friday, Jan. 11, 2019, in downtown Chattanooga, Tenn.

The number of Chattanoogans going broke has dropped this year to the lowest level in more than a quarter century as federal stimulus measures have helped prop up most financially distressed borrowers through the coronavirus pandemic.

Bankruptcy filings in Chattanooga during the first half of 2021 were down nearly 35% from last year's level and were barely a third of the rate of bankruptcies filed during the previous recession in 2009-2010. Despite the economic slowdown last year triggered by the spread of COVID-19 and the subsequent shut down of much of the economy, borrowers generally stayed afloat with the aid of government relief payments, extra jobless benefits, business loans and grants and limits on foreclosures.

"Many financially distressed businesses and households have been able to weather the economic effects of the pandemic to this point through stabilization efforts by the federal government, lender forbearance and continued low-interest rates," said Amy Quackenboss, executive director for the American Bankruptcy Institute. "As consumers and companies navigate the post-pandemic economy amid receding relief programs, global supply challenges and potential inflation risks, bankruptcy provides a lifeline to families and businesses who may be struggling financially."

The drop in bankruptcy filings at the Chattanooga division of the U.S. Bankruptcy Court and similar declines across Tennessee outpaced the 27% nationwide drop in total bankruptcy filings during the first six months of this year compared with a year ago. But Tennessee, as well as neighboring Alabama, still had some of the nation's highest rates of bankruptcy filings. The per capita rate of bankruptcy filings in Tennessee — 2.51 filings for every 1,000 people — was nearly 80% above the nationwide average.

Fewer Chattanoogans going broke

In the first six months of the year, bankruptcy filings in Chattanooga court fell by nearly 35% from year ago to the lowest level in modern history. Bankruptcy filings in Chattanooga this year are down 72.3% from the peak reached a decade and a half ago.

2021 - 1,233

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

Tennessee, Alabama and Georgia historically have higher bankruptcy rates than most of the country because they are among the states that allow lenders to make non-judicial foreclosures and claims against debtors. To avoid such claims, a bigger share of debtors in such states tend to seek relief in federal bankruptcy court.

During the pandemic, personal bankruptcy filings dropped dramatically due to the limits on foreclosure and evictions adopted by Congress as part of an unprecedented relief package. Despite the loss of jobs and cuts in payroll income last year due to pandemic-related business and school closings, expanded unemployment benefits, Payroll Protection Programs for employers and a host of other stimulus measures, including direct household payments and expanded child tax credits, have kept most household finances secure even during the economic downturn.

"With the tremendous amount of stimulus payments that were provided in the past year, household balance sheets are actually in pretty good shape, particularly when you add in the growth in both the stock market and home values," said Dr. Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee. "A big part of our population has seen an increase in wealth so why declare bankruptcy?"

The number of people seeking bankruptcy fell sharply during the pandemic as government aid propped up income and staved off housing and student-loan obligations, Fox said.

For all of last year, the number of Chattanoogans going broke and filing for bankruptcy dropped to less than half the previous year's total.

Top bankruptcy states

The average nationwide per capita bankruptcy filing rate for the first six months of 2021 decreased to 1.4 total filings per 1,000 per population. The state with the highest per capita filing rates in the first half of the year were:

1. Alabama (3.15)

2. Nevada (2.91)

3. Tennessee (2.51)

4. Indiana (2.31)

5. Delaware (2.23)

Source: American Bankruptcy Institute

Nationwide, total bankruptcy filings were 216,931 during the first six months of 2021, a 27% decrease from the same period a year ago.

Despite the overall drop in the number of bankruptcy filings, commercial bankruptcy filings rose 29%, with more than 7,100 businesses seeking chapter 11 protection last year, according to data compiled by Epiq. Among local companies filing for bankruptcy last year was CBL & Associates Properties, the shopping center firm forced into bankruptcy reorganization when malls and stores were ordered closed and many retailers closed or quit making lease payments. Major retailers like J.C. Penney, Sears, Toys R Us and Circuit City have all declared bankruptcy in recent years due to retail shifts to online buying and the extra challenges created by the temporary pandemic shutdown of many stores.

The bad news for retailers also helped household balance sheets for some consumers, economists said. Bankruptcies were also limited, in some instances, but the drop in household spending as people stayed home, canceled travel and socially distanced to avoid the coronavirus last year.

Despite the decline so far this year, bankruptcies could increase in the balance of 2021 as stimulus measures end and protections against evictions and foreclosures are phased out on July 31.

More than 2 million homeowners are still behind on their mortgages and risk being forced out of their homes with the end of the foreclosure moratorium, according to a new Harvard University housing report.

Researchers who published Harvar's State of the Nation's Housing report for 2021 said most of the homeowners at risk of foreclosure are either low-income or families of color. Congress has dedicated $10 billion to help homeowners get caught up on payments prior to the end of the moratorium, however.

Contact Dave Flessner at or 423-757-6340.