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Bankruptcies plummet as Pennsylvania households benefit from COVID-19 aid and pandemic savings

Katie Blackley
90.5 WESA
Increased government assistance and household savings have helped consumers to pay off credit card debt and avoid bankruptcy during the pandemic.

A spike in government relief and household savings during the pandemic has helped to ward off bankruptcies in Pennsylvania.

Bankruptcy filings both in Pennsylvania and across the country fell by about half between 2019 and 2021, according to the Administrative Office of the U.S. Courts. The agency reports that non-business bankruptcies throughout the U.S. dropped by 47% during the same period while business bankruptcies decreased by 37%.

Similarly, the clientele at South Side-based Advantage Credit Counseling Services has shrunk to historic lows, according to Heather Murray, the nonprofit’s director of compliance and community relations.

“It's definitely one of the aspects of the pandemic that we didn't expect,” she said. “We expected consumers to be struggling a little bit more financially, which in some cases they definitely are. But also, in some cases, the pandemic has brought them a level of financial stability as well.”

Advantage operates five offices in Pennsylvania, including one as far east as the Wilkes-Barre/Scranton area. It provides counseling to consumers contemplating whether to file for bankruptcy, along with federally-required financial management classes for debtors who exit bankruptcy.

“We have seen our pre-file counseling sessions decrease dramatically over the course of the last two years,” Murray said. Concurrently, there’s been a 44% drop in enrollments for the debtor education course people must take before being released from their dischargeable debts. In 2019, roughly 1,550 households completed the course, compared to about 870 last year, Murray said.

She said that Advantage usually counsels people struggling with credit card debt. It has become less common for consumers to fall behind on mortgage payments, she said, partly because the federal government halted home foreclosures for almost a year-and-a-half starting in March 2020. Pennsylvania has since dedicated $350 million in American Rescue Plan funds to help homeowners cover mortgage, tax, and utility payments.

Murray noted that federal stimulus payments, increased unemployment compensation, the expanded child tax credit, and other COVID relief measures have further buoyed household finances. Increased savings have also helped, she said.

“Travel was basically halted for almost two years. People have been working from home, so you're reducing your outside-of-the-home costs — no commuting, no gas, no lunches out. Kids’ activities were greatly decreased as well,” she said.

As a result, Advantage clients who opt not to file for bankruptcy have become quicker to pay off credit card debt, Murray said. The nonprofit offers a service for consolidating and paying credit card bills.

“What we saw over the course of the last two years [was that] the number of clients that, one, we’re putting on the program has decreased and then, two, the number of clients who are completing their program early has greatly increased,” Murray said

She predicted, however, that liabilities are likely to mount again as COVID relief programs come to an end and consumer spending picks back up.

“We're seeing an increase in credit card delinquency rates again. So these are all indicators that consumers are kind of reverting back to their normal habits,” she said.