A pandemic surprise: Utah bankruptcies actually fell during COVID-19. Here’s why.

Turns out, those government relief programs really worked, but filings are starting to tick up again.

(Francisco Kjolseth | The Salt Lake Tribune) Despite the pandemic's economic havoc, personal and business bankruptcy filings in Utah fell in 2020 compared to 2019. The Frank E. Moss U.S. Courthouse at 350 S. Main in Salt Lake City houses the U.S. Bankruptcy Court.

Economic devastation from the pandemic in Utah has not triggered an increase in personal or business bankruptcies.

At least not so far.

To the contrary: The Beehive State saw 7,641 personal bankruptcies filed last year under Chapters 7 and 13, down 22.7% during a year of tumult and COVID-19 lockdowns compared to 9,878 in 2019, when the state’s economy was booming.

Business bankruptcies were all but unchanged, with 20 filings under Chapter 11 in Utah for all of 2020 compared to 23 in 2019, according to the U.S. Bankruptcy Court.

The trend so far this year is down even more, with 2,946 personal and business bankruptcies filed from January through June in Utah, compared to 4,882 in the first six months of 2019 and 4,038 over the first half of 2020. Those numbers have been ticking up slightly in recent months but they’re still well below previous rates.

Bankruptcy attorneys say billions of dollars in pandemic relief money from Congress — especially payroll loans to businesses and beefed-up unemployment benefits — appear to have helped thousands of Americans stave off financial collapse.

“A lot of people were in a better spot than they were even working a regular $13- or $14-an-hour job,” said Aaron Nilsen, an attorney specializing in personal bankruptcies who runs the Utah Bankruptcy Clinic.

Personal filings rose slightly in March 2020, but for more typical seasonal reasons unrelated to the pandemic, Nilsen noted. In fact, when his own practice saw a roughly 60% decline in cases over the year, he said, he had to lay off an employee and seek government aid to keep his remaining staff on payroll.

“We just got completely eviscerated when they did the mandatory shutdown,” Nilsen said.

In addition to government assistance, he and others noted, many Utahns who struggled financially during the health crisis have been kept from the edge by limited moratoriums on evictions, debt collections and wage garnishments, including student loan debtors and those who fell behind on rent or utility bills.

Some of those benefits are expiring — at least in Utah — and that may account for personal bankruptcies now rising, Nilsen said. “A lot of these people are starting to feel the heat again, and that’s driving them back into our offices.

Aid under the Paycheck Protection Program clearly helped thousands of Utah businesses stay afloat, judging from those bankruptcy trends. The state averaged roughly two business bankruptcies filed per month under Chapter 11 through 2020, the same monthly rate as in 2019. That’s down to about one filing a month so far in 2021.

Crucially, bankruptcy numbers overlook what are likely hundreds of Utah employers who closed their doors outright during the pandemic without seeking legal protection from creditors. A Federal Reserve study released in April estimated the COVID-19 crisis has forced as many as 200,000 U.S. establishments more than usual in a given year to permanently shut down.

Although that data is preliminary, Fed researchers said that so far permanent business closures are “likely to have been lower than widespread expectations from early in the pandemic.”

There’s no hard tally on Utah business closures due to COVID-19 so far, but the federal study indicates that providers of personal services such as nail salons and barbershops have been among the hardest hit.

For midsize businesses — defined as having yearly earnings between $10 million and $500 million — Utah saw the fewest bankruptcies filed during the first half of 2021 among 10 states in the Rocky Mountain region. Nevada, Washington, Arizona, Colorado and Oregon, meanwhile, are seeing filings climb, in some cases, with record numbers.

Utah’s filings have inched up, too, in the past few months but remain well below their typical levels. It’s yet another sign the state’s economy continues to recover from the pandemic more quickly than the rest of the country.

But, according to one expert, it also indicates that financial-relief programs put in place during the pandemic kept many businesses from failing.

The Paycheck Protection Program alone pumped nearly $800 billion in forgivable loans into U.S. businesses before it expired in May, according to the Small Business Administration, with nearly $277 billion of that paid out in 2021.

Utah businesses have drawn a total of nearly $5 billion in PPP loans, including nearly $1.8 billion of that loaned to 32,814 Utah employers in the first half of 2021, according to SBA statistics.

“The notion of fiscal stimulus has worked,” said Jerry Foster, president of Arizona-based Resolute Commercial Services, a consultant to midsize businesses across the Rocky Mountain region, “so credit the government for essentially avoiding what could have been a very terrible outcome.”

But Foster warned the pandemic’s full impact on businesses may have yet to play out, judging from patterns seen after the 2009 Great Recession.

“It will take at least another year to see the actual consequences of the pandemic on middle market businesses,” Foster said, “especially in light of the influx of stimulus cash many of them have received.”