PORTLAND – For the first time in six years, the number of bankruptcy filings in Maine will likely decline in 2011. Whether that’s a sign the economy is turning around, however, is up for debate.
The state is on pace for about 3,700 filings this year, a 10 percent drop from an all-time high of more than 4,100 filings last year, according to Epiq Systems Inc., a company that tracks bankruptcy statistics nationwide.
At first glance, those numbers appear positive. Bankruptcy filings in Maine — 85 percent of which are business bankruptcies — have declined three straight months. The 206 filings in July were the lowest in any month since January 2009.
But bankruptcy statistics are often a “lagging indicator” of the economy, said bankruptcy attorney Richard Olson, a partner at Perkins Olson on Pleasant Street. Because of that, a 2011 decline in the number of filings may reflect positive economic trends in 2010, not necessarily what’s going on right now.
“It makes sense, if you think about it,” Olson said of the lag. “Businesses — just like individuals — try to hold on and survive as long as they can. Bankruptcy is often a last-ditch effort. So bankruptcy numbers are usually a step behind the rest of the economy.”
There is, however, reason for optimism, Olson and other experts said.
Bankruptcy attorney Jim Molleur of Molleur Law Office in Biddeford said banks recently have been more willing to work with borrowers to help them avoid filing for bankruptcy.
This includes refinancing borrowers’ loans, or extending borrowers’ timetables for paying back debt, both of which have helped some businesses stay afloat. This has likely contributed to the decrease in the number of filings, he said.
Larry Wold, president of TD Bank for the Maine market, confirmed Molleur’s theory. Historically, Wold said, banks could recoup some of their investment through bankruptcy when businesses sold off their assets after filing for Chapter 7.
But with few buyers out there to purchase the assets, lenders such as TD Bank have been more interested in working with borrowers, he said.
“Today, because of the weak economy, trying to liquidate assets in bankruptcy is just not a successful way to go about things,” Wold said. “It seems like a much better process to collect a little bit over time.”
Other experts take a less positive view of the declining number of bankruptcies.
Lois Lupica, a bankruptcy expert and the Maine Law Foundation Professor of Law at the University of Maine School of Law, said the number of filings may be declining because things couldn’t get any worse.
“It could be we’ve exhausted all the businesses in financial distress,” she said. “My guess is the businesses that found themselves in financial distress have already filed, and the businesses still remaining are the ones that are more established and better financed.
“We’re a small state,” she added. “We have a finite number of businesses.”
Wold, Molleur and Olson seconded her theory. “That certainly has at least in part contributed to (the declining numbers),” Wold said.
Maine has more than 80,000 registered businesses, according to the Maine Bureau of Corporations, Elections and Commissions. In 2009, the state had more than 3,800 bankruptcy filings. In 2008, it had 2,943 filings.
Even if bankruptcy filings decline every month through year’s end, the total number for 2011 will likely still be above 3,000 — a far cry from the 1,250 filings in 2006, before the economy tanked.
Lupica said she doesn’t see the filings dropping toward pre-recession levels anytime soon. Indicators such as low discretionary spending and volatile stock markets show the economy is still struggling.
But in addition to the declining number of bankruptcy filings, Olson and others see some positive signs. Olson said he stills sees people buying and selling businesses.
And Maine residents will start about 8,200 businesses this year, the highest number ever in this state, according to the Bureau of Corporations statistics.
That has to do, at least in part, with high unemployment. People can’t find jobs, so they create them, experts said. But people also need capital, energy and a belief they will succeed to start a business, “so the burst of entrepreneurial activity” is a positive sign, Olson said.
“I’m an optimist — I expect the numbers to continue falling,” he said. “But one thing is for sure: Whatever recovery we have is on tenuous footing.”
Staff Writer Jason Singer can be contacted at 791-6437 or at:
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