This spring, experts predicted economic devastation caused by the coronavirus pandemic would lead to a surge of bankruptcy filings as struggling consumers and businesses sought the protection of courts to escape their crippling debt.

But that hasn’t happened. In Maine, for example, bankruptcy filings were down 50 percent in August from a year earlier. In fact, they’ve been down nearly every month since the pandemic began.

A combination of government financial support, banks’ willingness to defer loan and interest payments, and a moratorium on evictions and foreclosures have kept most consumers and businesses afloat and out of insolvency. But as aid runs out, courts reopen and banks call in loans, bankruptcy experts forecast more people and companies will seek relief from insurmountable debt in the months ahead.

“Now that the money has been cut off, you are going to see things become more difficult for people,” said James Molleur, who has bankruptcy law offices in southern Maine. “People do not tend to file for bankruptcy when things are getting worse; they file when they hit bottom. I don’t think we’re there yet.”

Maine consumer bankruptcies year to date were down 14 percent in July from 2019, according to the American Bankruptcy Institute. The per capita rate of bankruptcies in Maine was the third-lowest in the country, according to institute statistics. Nationwide, bankruptcy filings are down 25 percent compared with a year ago.

According to electronic records for the U.S. Bankruptcy Court, District of Maine, 74 individuals and businesses in the state filed for bankruptcy protection in August, compared with 129 such filings in August 2019. Of all months since the coronavirus pandemic began, only March saw more bankruptcy filings in Maine than during the previous year.

Federal economic relief to small businesses and households, including a $600-per-week unemployment benefit and a $2 billion infusion from the Paycheck Protection Program, kept people afloat during the spring and summer. Eviction and foreclosure moratoriums and court closures for months delayed many bankruptcy and insolvency proceedings, said Peter Hatem, an attorney in Scarborough.

While a spike in bankruptcies has not emerged yet, Hatem said his office is already counseling clients who are preparing for that eventuality.

“We are talking with a lot of folks with no immediate reason to do it yet, but they are getting ready,” he said.

Commercial bankruptcies, however, are trending upward as challenging economic conditions during the pandemic and restrictions to prevent infection take a toll on high-contact businesses such as retailers, restaurants and hotels.

Nearly 60 percent of small businesses said they were worried about closing permanently in a July survey conducted by the U.S. Chamber of Commerce. By mid-August, consumer spending on apparel and general merchandise in Maine was nearly 11 percent below the level in January, and spending on restaurants and hotels was about 32 percent lower, according to a real-time economic tracker developed by Harvard and Brown universities.

The number of businesses filing for Chapter 11 bankruptcy has ticked upward this year, aided by changes to federal law that make it easier for small employers to restructure to resolve debt, said Jeremy Fischer, an attorney with Drummond Woodsum in Portland.

Maine lenders’ willingness to work with borrowers to defer or modify loan payments is a major reason few consumers and businesses entered bankruptcy proceedings so far this year, Fischer said. But that leniency will not last forever.

“Lenders are responsible to their owners just like every other business,” he said. “At some point, you can’t defer payments on most of your loans or the bank will have trouble.”

Some businesses, including beloved neighborhood and nationally recognized restaurants in Greater Portland, have closed permanently during the pandemic. But not every business that shuts down files for bankruptcy.

“That’s the type of situation where people are quietly shutting the doors, paying their debts and walking away without a lot of baggage,” Fischer said.

Maine’s relative success at curbing widespread virus outbreaks means businesses did not have to shut down again after being allowed to reopen this spring and early summer. Many restaurants, hotels and other businesses have transitioned to curbside takeout and outdoor service, and welcomed some out-of-state vacationers.

But operating outdoors will become more challenging as late autumn and winter set in, putting extra stress on struggling small businesses, said Andrew Helman, co-chairman of the bankruptcy practice at Murray Plumb and Murray in Portland.

If another federal economic stimulus package doesn’t emerge, Helman foresees more business closures and a cascade effect of lost rent payments and property values.

“As government assistance dries up and commercial activity fails to return to the normal baseline before COVID-19, we will start to see impacts,” he said.

Even though the Chapter 11 reforms that went into place this year make it easier for small businesses to restructure and avoid going out of business, not all will be able to take advantage, Helman said.

Businesses with substantial assets, such as a wedding venue or summer camp, have assets that would provide the core value they would use to pay off debt and reorganize, Helman added. Small retailers and restaurants typically do not have the same assets, making bankruptcy less appealing, and spelling trouble for those sectors.

“I am concerned because there are many businesses that won’t be able to be saved, because they don’t have the assets to reorganize around,” he said.

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