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

With unemployment at the highest rate since the Great Depression and businesses under financial stress during the coronavirus outbreak, more people and businesses are expected to seek relief from their debts in bankruptcy court.

But for now, with fears of the COVID-19 virus keeping most folks at home and government aid providing at least temporary help, the number of people going broke dropped dramatically last month.

Bankruptcy filings in the Chattanooga division of the U.S. Bankruptcy Court dropped to the lowest monthly total since November 2005. A total of 216 individuals or businesses filed for debt relief in federal bankruptcy court in April, only half the level of the previous month and down 52% from the same month a year earlier.

(READ MORE: Small business hotline opens in Chattanooga for assistance during COVID-19 crisis)

"The extraordinary measures taken by Congress and the Administration to assist individuals and businesses weather the initial economic shock caused by the pandemic have likely staved off bankruptcy filings to date," said Amy Quackenboos, the executive director of the American Bankruptcy Institute, the trade association that follows bankruptcy trends. "As financial challenges continue to escalate amid this crisis, bankruptcy is sure to offer a financial safe harbor from the economic storm."

Eron Epstein, a bankruptcy attorney in Chattanooga for more than three decades, said the additional federal jobless benefits and stimulus checks Congress authorized in Congress, combined with the forbearance relief from foreclosures, expulsions and credit default actions by banks and landlords, helped to limit bankruptcy filings last month.

Top states for bankruptcy filings

The states with the highest per capita rates of bankruptcy filings during April, and the number of cases filed per 1,000 residents, were:

1. Alabama (5.02)

2. Tennessee (4.44)

3. Mississippi (3.99)

4. Georgia (3.78)

5. Delaware (3.52)

Source: American Bankruptcy Institute; compilation of bankruptcy filings by Epiq Systems, Inc. The average nationwide per capita bankruptcy filing rate in April was 2.09 total filings per 1,000 per population, a decrease from the 2.29 filing rate during the first three months of the year.

 

Unemployment benefits for those laid off due to the coronavirus are getting an extra $600-a-week boost in federal benefits through the end of July, in addition to the $1,200 stimulus payment for adults (plus $500 per child) paid to most Americans this spring under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The coronavirus relief measures adopted by Congress in March also prohibit lenders and servicers from beginning a judicial or non-judicial foreclosure against borrowers after March 18 for at least 60 days. People who experience financial hardships due to the coronavirus pandemic have a right to request a forbearance for up to 180 days.

But Epstein expects once those temporary relief measures end, bankruptcy filings will go up again.

"Unless Congress does something else, I think by late summer things will come to a head for many people and our phones will start ringing loudly again with people needing bankruptcy relief," Epstein said. "I do sense that sometime in August or September, we'll probably see a dramatic increase in filings."

Tennessee remained one of the top states for per capita filing for bankruptcy last month as it has been for years, due in part to the ability of creditors to foreclose or garnish wages with less court protection than in many states. Bankruptcy filings tend to be higher in such non-judicial foreclosure states, including top-ranked Alabama and nearby Georgia, which had the fourth highest rate of bankruptcy filings for its size of any state during April.

Nationwide, total U.S. bankruptcy filings last month were down 46% from the previous year and declined by 39% from March's total, according to data provided by Epiq Systems Inc.

John Colwell, president of the National Association of Consumer Bankruptcy Attorneys, said there is often a lag between when people suddenly face financial woes and when they file for bankruptcy relief in court.

"People are in a state of shock, they can't think straight," he said. "It's clear the filings are going to go back up. There's no question about it."

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

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