The economic lessons of the pandemic's flash recession, jobs comeback and inflation overshoot are still being studied.
Here's one that's surprising and still unfolding: Bankruptcy filings fell in each of the last three years here in the Twin Cities.
The data is more mixed by state and metro area, but bankruptcy rates nationwide are generally well below pre-pandemic levels. That flies in the face of expectations a year ago among bankruptcy lawyers and the financial services industry.
The development is another reminder that, while we measure so many endeavors these days with an eye to getting back to how things were before the pandemic, much about our work and economy were permanently changed by it.
A quick look back at news coverage at the start of 2022 shows there were plenty of voices who thought a return to financial trouble for millions of Americans was imminent. One Las Vegas-area bankruptcy attorney in May was quoted by Debt.org, a provider of debt relief information, predicting "a Great Depression the likes of which we've never seen." I'll spare the guy his name but you can easily find the article.
The federal bankruptcy courts in Minneapolis and St. Paul last year each recorded about 2,000 filings, fewer than half what they experienced each year from 2016 through 2019. And that was far below the 8,000 to 10,000 that were filed annually in the years after the 2008 recession.
"It's been a drastic decline," said Greg Wald, a bankruptcy attorney based in Bloomington. "At first we figured it was because garnishments and evictions were stopped by the state. That help has long been removed and it still hasn't gone up."
The flood of direct aid to individuals from the federal government in 2020 and 2021 is widely seen as the biggest help. In addition to stimulus checks sent to nearly everyone, the federal government provided an enormous boost to the unemployment assistance that states paid.
"As soon as all the moratoria came and people had all the extra money from unemployment [benefits], most of them paid down their debt," said Andrew Walker, a bankruptcy attorney in Minneapolis.
Personal savings rates doubled in 2020 and 2021 and then fell back to normal after those measures ended. But it has been two years since the last stimulus checks were sent out and about 18 months since the extra unemployment aid ended. The most significant pandemic aid that's still lingering is the halt on federal student loan payments, due to end this summer.
But the decline in bankruptcies is across businesses as well, again shaped by government aid that has mostly ended. Small-business owners in particular were afforded the chance to revamp or close down without debt obligations.
"There's been surprisingly few small businesses that filed," Walker said. "Look at all the restaurant closures that have happened without bankruptcy."
By contrast, bankruptcy filings were high for several years after the 2008 recession. Kris Whelchel, a bankruptcy attorney in Roseville, recalls that as a calamity that began in the housing industry and then tumbled through profession after profession.
"It started off with a lot of mortgage brokers, and then you could see it kind of spread," Whelchel said. "Eventually, a lot of truck drivers came in because of gas prices."
With individual bankruptcies, housing is usually the pinch point that leads a person to file, Whelchel said. A lot of other debts can build and bills can go unpaid but, when someone is facing the loss of home, a bankruptcy restructuring becomes appealing.
And that may be the real reason why bankruptcies remain so low. In 2008 and the years after, real estate prices collapsed and many people lost their equity. Today, that's not the case. What's more, demand for houses is high and supply is low.
"Foreclosures are at almost zero," Walker noted. "If someone gets in trouble with their mortgage, they can just sell."
Everything could change this year, of course. Bankruptcies could rise if recession comes. And because the Federal Reserve raised interest rates to combat inflation, the cost of borrowing for everything — credit cards, mortgages, cars — has risen.
Causes, effects and the future aside, Wald joked that he's puzzled by an entirely different phenomenon.
"I wish I understood why my business goes down but I'm still working 60 hours a week," he said. At a recent hearing, he added, "One of the bankruptcy judges was wondering the same thing."