Bankruptcy filings continue this year at a pace well below last year’s record rate, according to U.S. Bankruptcy Court Middle District of Florida statistics.
In the Middle District of Florida, the pace of filings from January to October was 17.4 percent below last year’s annual rate.
In the Jacksonville division, the pace is 15 percent slower than last year.
Nonetheless, the Middle District continues as one of the most active districts in the country for bankruptcy filings.
According to the U.S. Bankruptcy Courts website, from October 2010-September 2011, the Middle District of Florida was No. 3 in the number of filings.
For that 12-month period, the Central California District had 139,882 filings, the Northern Illinois District had 60,976 and the Middle District of Florida had 56,972.
Total U.S. filings were 1.47 million, down 8.1 percent from the prior 12 months.
Area bankruptcy lawyers have been busy the past few years, and a slowing was to be expected.
“Although it seemed like the number of filings in the Middle District would continue on an upward trend for some time, much like real estate values four years ago, such ‘growth’ was ultimately unsustainable and prone to a retreat,” said Rob Heekin with the Stutsman Thames & Markey firm and secretary of the Jacksonville Bankruptcy Bar Association.
“From our perspective, the decline in filings this year can be attributed to a number of factors: the economy generally stabilizing, a drop in the size of the remaining ‘pool’ of potential filers and a general slowdown of the judicial foreclosure process as a result of several factors,” he said.
He said those factors include, but are not limited to, mandatory mediation programs, additional federal programs designed to assist homeowners with modifications, and banks taking the time to ensure that loan processing errors are resolved before continuing the process.
Heekin said that foreclosures and unemployment drove the past wave of bankruptcy filings.
“So long as there remains a risk for a second ‘wave’ of foreclosures or layoffs, there remains the potential that we’ll see yet another uptick in filings,” he said.
Bankruptcy attorney Edward Jackson, a director of the Jacksonville Bankruptcy Bar Association, said the initial surge of bankruptcies has come through.
“The surge in bankruptcies that we experienced in the first years of the recession may be behind us now. This does not mean that the recession is over, just that most consumers who needed to file for bankruptcy have done so,” Jackson said.
“Most debtors who cannot pay their credit card debt because of a decline in income have already filed bankruptcy. Many people who cannot pay their credit card debt are unemployed and cannot afford to file bankruptcy until they have some income,” he said.
Jackson said he is seeing more bankruptcies caused by failing businesses than in 2010, but not enough to make up for the drop in the number of consumer bankruptcies this year.
Attorney John Macdonald with Akerman Senterfitt said the economy might not be worse, but it isn’t any better, either.
“Although the economists will tell us that the recession has ended here in Florida, the reality is that we appear to be stalled at a low but relatively stable level of activity, with the general perception that things are not getting any worse but are getting no better,” he said.
“The feeling is that the modest decline in filings does not reflect any significant economic improvement, but only that the initial slug of bankruptcy filings by those facing financial hardship has now subsided. Plenty of people are still facing tough times, and there will still be significant filings to come, it is just that the first wave has washed through,” he said.
Attorney Kevin Paysinger with the Bankruptcy Law Firm of Lansing J. Roy said this time of year is considered a slower time for bankruptcy filings.
“Consumers are focusing on family and the holidays and some will push their financial distress off to the New Year,” said Paysinger, a director with the Jacksonville Bankruptcy Bar Association.
“Also, because a consumer’s tax refund is subject to turnover to a trustee, consumers often wait to file until they get their tax refund at the beginning of the year, which is a source of funds to pay their bankruptcy attorney,” he said.
“Obviously, people still file bankruptcy during the last two months, but overall the last two months seems to be a little slower,” he said.
The Middle District accounted for almost 4 percent of all U.S. filings, while Central California accounted for almost 10 percent, while Northern Illinois represented 4.2 percent.
The Middle District encompasses 35 of the state’s 67 counties and covers the major metropolitan areas of Jacksonville, Orlando, Daytona, Tampa and Fort Myers.
The pace of bankruptcy filings this year will be affected by what happens with foreclosures, which slowed in the wake of questions about proper signatures on paperwork.
In the Jacksonville division, the average monthly filings are 811 this year, down from 982 last year and 938 in 2009.
The recession’s toll has been clear in the trends.
For the full calendar year, Middle District bankruptcy filings rose from 15,304 in 2006 to 61,690 in 2009 and peaked at 66,618 last year. The pace so far in 2011 is about 55,000.
Bankruptcy attorneys attributed last year’s record rate to effects of the 2007-09 recession and the credit crisis.
Unemployment reached double-digits and consumers and businesses, especially those associated with real estate, faced particularly tough times.
The national recession ended more than two years ago. The Florida recession didn’t end until early 2010, economists have said.
Unemployment has fallen below 10 percent nationally but remains in double-digits in Florida and Jacksonville.
The U.S. Labor Department reported that the national unemployment rate was little changed in October at 9 percent.
The Florida rate dropped from 10.7 percent in August to 10.6 percent in September.
In Duval County, the rate fell to 10.83 percent in September from 11.14 percent in August and 12.38 percent in September 2010, according to state numbers adjusted for seasonality by the University of North Florida Local Economic Indicator Project.
The October rates for Florida and its counties are scheduled to be released Friday.
Within the Middle District, the Jacksonville Division covers 16 North Florida counties.
The 45,835 district filings in the first 10 months were down 19.5 percent from the 56,958 in the same period in 2010.
Filings in the Jacksonville division from January-October fell 17.4 percent from last year to this year, with 1,711 fewer filings.
At the 10-month pace, the division could end the year with about 9,730 filings, compared with last year’s 11,439.
In the Middle District, filings are down by more than 11,123, or 19.5 percent, in the first 10 months of the year compared to the first 10 months of 2010.
If filings remain at the 10-month pace, the Middle District could end the year with about 55,002 bankruptcy petitions, down more than 11,600 from last year.
Among the Middle District filings:
• Chapter 7 liquidations were down 19.1 percent, while continuing to account for 75 percent of all filings. Businesses and individuals use Chapter 7.
• Chapter 13 wage-earner reorganizations are down 20 percent. The filings account for 24 percent of all filings.
• Chapter 11 reorganizations are down 23 percent. While dominated by businesses, bankruptcy lawyers say high-wealth individuals are also seeking protection under the chapter. The use of Chapter 11 by individuals has been increasing, and the majority of those filings are attributed to real estate investments, according to court information.
Bankruptcy Judge Paul Glenn in the Middle District, the immediate past chief bankruptcy judge in the district, said earlier this year that since the recession began in late 2007, the court saw filings by real-estate related petitioners, such as construction companies, subcontractors, developers and related entities.
Then small businesses began filing, followed by more individuals who are invested in real estate and can no longer carry the debt because they can’t sell the properties or make enough rental income from them.
Looking toward 2012, attorney Mark Mitchell, who is president of the Jacksonville Bankruptcy Bar Association, expects the pace of filings to continue.
“Most economists are predicting another year of stagnant growth in 2012, forecasting GDP growth at 1.5 to 2 percent,” he said, referring to gross domestic product, a measure of the nation’s economic growth.
“Given the current state of the economy and the relatively high unemployment figures, I believe that bankruptcy filings will likely stay the same during 2012,” he said.
Mitchell, a shareholder with the Rogers Towers firm, said bankruptcy filings generally tend to increase at the end of the first quarter of each year, “after people feel the burn of overspending during the holidays. So, after the holidays, I think we will see an increase in filings.”
Also, Mitchell said, housing continues to affect the economy.
“A significant and continuous drag on the economy and a big factor in unemployment is the precarious state of the housing market. The continued depreciation of real estate also negatively affects filings in Chapter 13, which is a reorganization for individuals, designed primarily to save one’s house or car,” he said.
“The reality is that many people are too far underwater on their mortgages to consider filing Chapter 13 to save their house. I suspect many people in this situation may file Chapter 7 and surrender the house or simply not file and give the bank the keys,” Mitchell said.
Paysinger said that because recent bankruptcies have been driven in large part because of the housing market, consumers who cannot make their mortgage payments and face foreclosure sort through options before making a decision about how to remedy their situations.
“Short sales, deed in lieu, foreclosure defense, loan modifications, all these have their pros and cons and a consumer can get to the point where they get paralyzed by fear of making the wrong decision,” Paysinger said.
“Also, many consumers are simply stalling with the hope that Washington can come up with some sort of modification program that actually works before their home is too far in arrears to modify,” he said.
Paysinger cites another reason for a decline this year.
“Some consumers are to the point where they feel they do not have anything to protect, so their thinking is why go through a bankruptcy now? Their house is upside down, their cars are not worth much, they do not have any wages to garnish, so why do anything except focus on surviving?
“And now that foreclosures are taking even longer than before, consumers have the time to wait. Nothing is front-and-center pushing them to make a decision, even though bankruptcy can protect their assets and wages from creditors as well as get a fresh start,” he said.
Paysinger believes that if foreclosures increase like they did in 2008-10, more people might decide to seek bankruptcy.
Heekin doesn’t expect a slowdown in filings, either.
“You still have some folks who have not yet exhausted all efforts to salvage their business or property. A lot of people are still hanging on, and any increase in the amount or speed of foreclosure filings next year will only serve to drive people to seek out whatever means they have available to save their homes,” he said.
Macdonald said that bankruptcy filings typically come in cycles, “with the trend being increased filing about two-thirds of the time.”
“We are now seeing a swing of the pendulum toward decreased filings, but we can certainly anticipate that the pendulum will swing again. So, I see 2011 and likely 2012 reflecting this modest decline, with increased filings returning thereafter,” he said.
Macdonald said that Chapter 11 filings are down, but the perception is that there are still many businesses, particularly those tied to the real estate industry, that have exhausted their resources and might have to seek reorganization.
“Conventional wisdom and the general consensus of those in the reorganization industry is that there is plenty of economic hardship still to come, and that another wave of financial failures may still be in the offing,” Macdonald said.
Also in the Middle District, there were 71,969 pending cases as of Sept. 30, up 1.3 percent from 71,077 the year before.
It was the second-highest number, behind the 76,558 in Southern California.
“The bottom line is that the combination of bankruptcy filings and pending cases in our district remains at a daunting volume,” said Michael Freed, Florida managing partner of the Brennan, Manna & Diamond firm and president of The Jacksonville Bar Association.
“At the same time, the resources made available to our courts are simply not sufficient.
Until the legal system (bankruptcies and foreclosures) can address the unprecedented volume of cases and the real estate at issue in those cases, we will not see the economic improvement for which we are waiting,” he said.
Freed said that national and state lawmakers need “to commit appropriate resources to this effort.”
356-2466
January-October bankruptcy filings
Jacksonville Division
U.S. Bankruptcy Court
Middle District of Florida
| Year | 10-month filings | Annual |
| 2011 | 8,109 | 9,731 (pace) |
| 2010 | 9,820 | 11,439 |
| 2009 | 9,381 | 11,144 |
| 2008 | 6,928 | 8,412 |
| 2007 | 4,974 | 6,015 |
| 2006 | 3,461 | 4,184 |