Bankruptcy filings in state rise 13%
Posted on Friday, March 7, 2008
Average monthly filings in Arkansas in January and February rose 13 percent compared with all of 2007, outpacing the national rise of 9 percent for the first two months of the year, according to Automated Access to Court Electronic Records.
Arkansas ranked 17 th among all states for January and February.
February was the nation’s second-busiest month, behind October 2007, since Congress overhauled the bankruptcy law in 2005.
U. S. filings in February were 13 percent greater than in January, and 35 percent greater than February 2007, according to Automated Access, a bankruptcy data and management company.
Bankruptcy experts said the rise was particularly worrisome because those 2005 changes made filing for bankruptcy more difficult.
“This number of bankruptcies may be underrepresentative of the true financial distress consumers are feeling because of the steps Congress has taken,” said Jack Williams, a scholar in residence at the American Bankruptcy Institute and a professor of bankruptcy at Georgia State University.
The latest figures show the financial pain is spreading from states like California and Florida, which exemplified the housing boom and subsequent bust, to those along the eastern seaboard like Maryland, Virginia and Delaware, which were among the 10 states with the largest percentage increase in filings in January and February. “You are seeing a good-size uptick everywhere,” said Mike Bickford, president of Automated Access.
States with the greatest monthly average increases are: California, up 33 percent; Maryland, up 29 percent; and Florida, with a 26 percent rise, the data show. Filings fell in Colorado, Indiana, Ohio, South Dakota, Kansas and Wyoming, among others.
Clarence Cash, a bankruptcy lawyer in Little Rock, said that February was his firm’s biggest month for filings since October 2005, even though the month had just 29 days. So far, March also looks like it also could set another record for the firm, he said.
Bankruptcy experts caution that data from just one or two months can be misleading. “The monthly bankruptcy filing rate has a lot of cyclicality,” Robert M. Lawless, a professor of law at the University of Illinois College of Law, wrote Tuesday on the widely read bankruptcy Web journal, Creditslips. org. Some experts, for example, say bankruptcies often seem to rise in February as debts from the Christmas season come due. Even so, the trend is definitely upward, Lawless wrote.
On a per-capita basis, Arkansas has the sixth-most bankruptcy filings, compared with other states and the District of Columbia, according to Automated Access.
“We’re a poor state and a lot of people — probably more than some other states — a lot of people live right on the edge,” Cash said. “If the transmission goes out in their car, they can’t pay their utilities or they can’t pay their house payment. [There are ] a lot of people on that kind of hand-to-mouth existence.” Williams expects the number of bankruptcies nationwide to reach 1. 2 million to 1. 4 million this year, up from 826, 732 in 2007; Lawless expects more than 1 million. (In 2004, the last year with a normalized set of data, 1, 597, 462 petitions were filed, according to Automated Access. )
Proponents of the bankruptcy law argued in 2005 that some consumers were abusing the law, using Chapter 7, or liquidation, to shed credit-card debt. The bill, supported by both Republicans and Democrats, “increased the expense for everyone and reduced the protections for everyone,” said Williams.
But the rising number of people filing now suggests that more well-to-do Americans are able to seek protection from their creditors.
“The credit industry did its best to drive up the cost of filing but when families are in enough trouble they will fight their way through the paper thicket and higher attorneys’ fees to get help,” said Elizabeth Warren, a professor at Harvard Law School and the author of numerous books on bankruptcy.
Warren says that the increase also reflects changing attitudes about bankruptcy. Many Americans now understand that filing bankruptcy is legal, something many did not appreciate a few years ago. Studies last year showed that one of seven families was dealing with debt collectors, who often encourage families not to file for bankruptcy, she said.
Record home foreclosures have contributed to the rise in bankruptcies but on their own do not account for the latest increase.
“Rising bankruptcy certainly understates the stress because bankruptcy is not a refuge from foreclosure,” Mark Zandi, chief economist at Moody’s Economy. com, said. Under the current bankruptcy code, the courts cannot alter the terms of first mortgages. Proposed legislation in Congress seeks to change this, but few think it will pass.
This suggests more trouble for the broader economy.
“Everything is going wrong for households,” Zandi said. “They are struggling with rising unemployment; high debt loads, heavier because of mortgage resets and plunging housing values; soaring gasoline prices; wobbly stock prices. The data suggest bankruptcies will rise measurably through the remainder of the decade.” Information for this article was contributed by Jenny Anderson of The New York Times and Toby Manthey of the Arkansas Democrat-Gazette.
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