Maine is on track to finish 2022 with the lowest number of new bankruptcy filings in at least two decades, a surprise to attorneys and experts who predicted a surge due to the economic pressures of the pandemic.

The legal applications – which individuals and businesses file to begin the process of obtaining protection from creditors – are considered a key indicator of an economy’s health. From January to November, the U.S. Bankruptcy Court for the District of Maine reported 496 filings of all case types across the state. Last year during that period, the total was 601.

There were 654 bankruptcy filings for all of 2021. It was the first year the number of filings in the state dipped below 1,000 since at least 2000, according to the oldest data available from the American Bankruptcy Institute.

Maine will likely end this year with fewer than half of the 1,358 filings of 2019.

The drop mirrors a national trend. Other federal courts reported in October that personal and business filings were down 12% from the previous year’s total.

These positive economic signs come even as economic hardship may be getting worse.

Government programs that helped many people during the pandemic, such as emergency rental assistance, have ended. So have moratoriums on evictions and foreclosures. Courts put a pause on debt collection lawsuits in order to focus on urgent criminal and family matters, but those cases are moving forward again.

“I do think that we all had a pause, and it’s important for people to realize that the pause is either over or coming to an end,” said Portland attorney J. Scott Logan, who focuses his practice on bankruptcy and debt relief services.

“It is a little bit mystifying.”

LONG-TERM TURNAROUND, OR TEMPORARY?

In Maine, bankruptcy filings began to decline after hitting a recent peak of 4,205 in 2010. No one seems entirely sure why there’s been such a fall-off across the U.S. Some experts speculated it was the result of Americans better managing their finances in reaction to the Great Recession of 2008-09.

More recently, while COVID-19 crippled economies worldwide, emergency government assistance kept businesses afloat and bankruptcies down.

The assistance took many forms: the Paycheck Protection Plan loans that helped people keep their jobs, an extra $600 for weekly unemployment benefits for those who lost work, emergency rental assistance and forbearance on mortgage payments to help people stay in their homes. There were also deferrals on student loans that helped people with their monthly cash flow, and stimulus checks to help people keep cash in their pockets.

“Bankruptcy filings declined sharply during the pandemic due to increased financial support at both the federal and state level,” said Sharon Huntley, spokesperson at the Maine Department of Administrative and Financial Services. “This relief provided likely allowed some financial cushion, so filings haven’t seen a reversal.”

But those programs were targeted and temporary, and they have ended or will eventually.

“If economic conditions deteriorate next year, bankruptcies may start increasing again,” Huntley warned.

Jeffrey Piampiano, an attorney at Drummond Woodsum in Portland and a trustee for certain types of bankruptcy cases, said, “Those things did exactly what they were supposed to do. I think there’s a concern that now that they’ve gone away, that cushion that was there was saving people from the need for filing for bankruptcy.”

Nate Hull, a lawyer at Verrill in Portland and another trustee for bankruptcy cases in Maine, believes another reason for the low number of filings has been the hot housing market. For Mainers in financial trouble, selling a home at a premium price provided a ready source of cash, a way to pay off debt, and an alternative to bankruptcy.

“The significant increase in home values both permitted people who were in default on their mortgages to sell their property and pay off their obligations, and probably have some money left over,” he said.

Now, banks and creditors are calling in deferred debts and collection lawsuits have resumed. At the same time, October data from the Federal Reserve showed that revolving credit balances (the kind carried on credit cards) have increased more than 10% from a year ago.

To Hull, the unemployment rate is another indicator to watch. A low rate of joblessness means people who leave or lose their jobs can usually get back to work soon, which could prevent debt and bankruptcy.

“While there’s still a healthy job market, I wouldn’t expect to see too much of an increase, but if the job market deteriorates, we’ll probably see more people filing for bankruptcy,” he said.

Logan said he is worried some people are ignoring “financial fiascos” that have been kicked down the road during the pandemic. It’s tempting to see the decrease in filings as a positive indicator for the environment, but he cautioned against that approach.

“I don’t think that’s a reality,” he said. “I think unfortunately, people just aren’t paying attention to their financial situations and just ignoring a problem that’s not going to go away and is only going to get bigger.”