Tennessee braces for possible flood of bankruptcies
NASHVILLE — Enhanced federal unemployment payments are set to phase out at the end of this month and many economic analysts are braced for a deluge of bankruptcy filings because of ongoing business shutdowns.
Tennessee is especially vulnerable because it has some of the highest levels of consumer debt and personal bankruptcies in the nation.
Government leaders are considering the best way to keep the benefits of stimulus payments going as positive COVID-19 tests surge in states including Tennessee.
But there are no easy answers.
The COVID-19 business closures already triggered bankruptcies for J.C. Penney, Pier 1 Imports, 24 Hour Fitness, Hertz and other corporations that were already stretched thin by hefty debt payments.
U.S. corporate bankruptcies were up 43% in June, over the prior year, according to legal services firm Epiq.
Small mom-and-pop businesses that rely on foot traffic and have few employees are even more exposed because they’re less likely to have cash savings to survive months without customers.
“Something people don’t realize is that, as a whole, downtown is nearly 75% locally owned,” said Jeanette Barker, vice president of strategic development for Nashville Downtown Partnership. “These are our neighbors and our friends. We’ve got 75,000 employees downtown and the vast majority of them are not going to lunch or doing after work happy hour. So that has a very real impact.”
‘Huge amount of uncertainty’
An influx of business bankruptcies would send shock waves through the economy.
“As more and more people curtail spending and businesses go out of business, it begets more layoffs and more economic pain,” said Doug Milnes, head of data analytics at Moneygeek.com. “It’s not unreasonable to conclude that bankruptcies are going to spike if there’s no federal stimulus passed.”
So far, the CARES Act has helped avert wider problems and American household savings accounts have grown overall. But the regional coronavirus resurgences threaten to wipe out those gains.
Landlords and mortgage lenders have been willing to negotiate payment extensions and, in some cases, reductions. Utility providers, student loan lenders and auto companies have similarly offered temporary reprieves.
Nashville Electric Service is allowing customers to wait until Sept. 30 to pay bills.
But, as those bills pile up, Americans could ultimately turn to credit to stay afloat.
“Early indications are that there’s a pretty close relationship between an increase in cases in areas where the resurgence has been stronger and things like job losses,” said Laurel Graefe, vice president of the Federal Reserve Bank of Atlanta’s Nashville branch. “We all wish we had a crystal ball. There’s just a huge amount of uncertainty.”
Tennessee tops US for delinquent payments
Tennessee is among the top states with the highest share of delinquent credit payments.
Since March, Tennessee’s rate of personal bankruptcy filings per capita have been third-highest in the nation with 6,725 individuals seeking bankruptcy protection. But that is on par with recent years.
Chapter 11 filings decreased slightly compared to last year during the coronavirus crisis amid court closures.
That trend is likely to reverse as courts resume more normal business schedules.