The U.S. economy shrank by 33% from April to June, the worst quarterly plunge ever.

Yet, in Kentucky, bankruptcy filings actually dropped.

There were 34% fewer bankruptcy petitions from the first to the second quarter of 2020, according to new data from the Administrative Office of the U.S. Courts. The filings were also down more than a third when compared to the same period last year.

If that sounds like good news, experts warn the worst is yet to come. As the COVID-19 pandemic forces millions of Americans out of work and into debt, some Kentuckians are scraping by on unemployment insurance. Others might be waiting for their situation to bottom out before filing bankruptcy.

Weve got a tidal wave of bankruptcies coming, said Peter Brackney, a bankruptcy attorney in Lexington. The waters often recede before the wave comes in.

There are likely many reasons for the bankruptcy downturn. As the pandemic drags on for months longer than first anticipated, indebted consumers and business owners might be awaiting their financial nadir before petitioning a court for a discharge, or release from certain debts. Some debtors might be waiting for their employment situation to straighten out before entering bankruptcy proceedings. Others might be hoping for further relief from policymakers such as student loan debt forgiveness, considered a hail mary.

Some experts credited the governments emergency relief measures for mitigating the worst of the economic fallout. The centerpiece of the federal response was the $2.2 trillion CARES Act, which included the $669-billion Paycheck Protection Program, stimulus payments, forbearances on mortgages and student loans, and expanded unemployment benefits. A state moratorium on evictions has also staved off personal disaster for thousands of Kentuckians.

But relief measures arent expected to be permanent, and financial calamity continues to threaten those unable to make ends meet.

Steve Vidmer, a bankruptcy attorney in Murray, saw a clear lag in bankruptcy filings after Mattel closed its local Fisher-Price toys plant in 2002. Nearly 1,000 employees were laid off.

Here I assumed the floodgate was opened, Vidmer recalled. But it took a long time before people realized they might need to file for bankruptcy. Sometimes its not until months or years later that they realize theyre in a pickle they cant get out of.

Since April, bankruptcy filings are trending upward, if slowly. In April, there were 809 bankruptcy petitions filed in Kentucky; in June, there were 948.

Still, Junes filing total was 24% lower than June of last year. Meanwhile, theres some evidence consumer debts are getting worse. Americans will rack up an estimated $80 billion in new credit card debt in 2020, a roughly 8% increase, according to ananalysisfrom WalletHub.

The debt is there, but people havent paid the consequences yet, said Ed Flynn, a consultant with the American Bankruptcy Institute. After unemployment benefits expire and after foreclosures pick up again, he predicts bankruptcy filings will really go through the roof.

The typical debtor is not very high income, in Kentucky or anywhere else, Flynn said. It may take a year to really play out, but at some point, people are really going to feel the pain.

Graham Ambrose is an investigative reporter covering social services and youth issues. He is aReport for America Corpsmember. Contact him at gambrose@kycir.org.

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Kentucky Bankruptcies Dropped Last Quarter. It's The Calm Before The Storm - WKMS