Bankruptcies have dropped significantly across Whatcom County, but at least one local expert believes financial health remains poor for many residents.

Last year 620 Whatcom County bankruptcies were filed, according to data from the U.S. Bankruptcy Court Western District in Seattle. That's down 16.6 percent compared to the previous year and is the lowest annual total since 2008. The peak year during this economic downturn came in 2010, when 808 local bankruptcies were filed.

The drop in bankruptcies has little to do with economic improvement and more to do with bankruptcies not being a good option for the people who haven't already filed for the protection, said Tom Lester, a Bellingham bankruptcy lawyer at Lester & Hyldahl.

"Unfortunately I'm seeing more people who really have nothing to protect, so bankruptcy doesn't make sense for them," Lester said.

He said one issue is the lack of jobs. While the unemployment rate is dropping and some jobs are being added in Whatcom County as well as the state, Lester said he's seeing a significant number of people who have given up looking for work and are no longer counted in the unemployment statistics. Ironically, an uptick in the unemployment rate could be a sign the economy is recovering, because it would indicate more discouraged workers are re-entering the job market.

If the job market improves, Lester said that could mean an uptick in bankruptcy filings because people in bad financial shape that were previously unemployed will have a source of income that needs protection.

He said current bankruptcy filings tend to be from the middle and upper class, because they were able to survive longer without filing for protection.

One other trend Lester is seeing is an increase in bankruptcies from people saddled with too much student loan debt. He said typically the client is someone who has been in the job market for 10 or 15 years and just can't pay off the loans at their current income level. Given the increase in college loan debt in recent years, Lester expects this problem to increase.

"I think we're just beginning to see the tip of the iceberg," Lester said. "I'm hopeful that this is an issue that Congress will address."

The drop in bankruptcy filings is a trend that took place across Western Washington. In the Seattle and Tacoma courts, 17,879 filings were made in 2012, a 10.6 percent drop compared to 2011. The number of business bankruptcies in Western Washington also dropped significantly to 717, down from 985 in 2011.

Reach Business Editor Dave Gallagher at 360-715-2269 or dave.gallagher@bellinghamherald.com. Read his business blog at blogs.bellinghamherald.com/business or follow him on Twitter at @bhamheraldbiz.