by Karen Brune Mathis
Just three weeks from the new year, bankruptcy filings in the U.S. Bankruptcy Court Middle District of Florida have surpassed last year’s number and are on track to top the record by 6 percent.
Through November, 61,978 bankruptcy cases were filed in the district, compared with 61,690 for all of 2009.
At the 11-month pace, the year could end with more than 67,600 cases in the district, and that’s 6 percent higher than the record 63,778 cases filed in 2005.
Jerrett McConnell, chair of the Jacksonville Bankruptcy Bar Association, said the 2005 filings were “levels that we didn’t think we would ever see again.”
The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was a major change to U.S. bankruptcy laws. The act created stricter bankruptcy eligibility requirements for consumer debtors.
However, the economic recession, slow recovery, double-digit unemployment, significant foreclosure rates and related factors are weighing heavily on consumers and businesses.
“People are struggling. I hear similar stories from many of my clients,” said McConnell.
“They tell me how not long ago they had credit scores in the 700s and things were going great. But invariably they have some circumstance that happens in their lives that pushes them over the edge into a financial death spiral that they can’t recover from. It’s really sad,” he said.
The credit score is a measure of a consumer’s creditworthiness and ability to repay debt.
A score of 700 and higher is considered very good.
McConnell said that many of the people he met considered themselves to be financially sound, “but circumstances and the economy got the better of them.”
McConnell, a partner in Friedline & McConnell, said the economy was experiencing a “butterfly effect.”
“One business failure or bankruptcy can take several other businesses or individuals, who are otherwise getting by financially, down with it,” he said.
Bankruptcy lawyer Robert Wilcox with Brennan, Manna & Diamond said that a big factor is the decline in the value of people’s assets, such as their homes and investments.
“As people feel that wealth drying up, that puts them in a situation where they cannot handle any financial shock, whether it’s a reduction in commissions or a loss of hours or high medical bills,” said Wilcox.
That situation “tends to force people over the edge and bring them to the realization they may not be able to pay their debts,” he said.
Wilcox said there are more people in financial distress than those who file for bankruptcy. “For everybody who files, there are three or four who should,” he said.
“Those people are trying to tough it out and they should. Bankruptcy should be a last resort,” he said.
If bankruptcies continue in December at the pace of the first 11 months, the 2010 rate of filings would top last year by 10 percent. The Middle District covers 35 of the state’s 67 counties.
The district includes the 16-county Jacksonville Division. That division had 10,643 filings during January-November, up 3 percent from last year.
The annual rate is higher than last year’s 12-month total but below 2005.
The Middle District includes the major metropolitan areas of Jacksonville, Orlando, Tampa, Fort Myers, Ocala and Daytona.
In the Middle District, Chapter 7 liquidations rose 10.5 percent year-over-year and Chapter 11 reorganization filings were up 16 percent. Chapter 13 wage-earner plans were up 5.3 percent.
The rise in filings by individuals shows in the numbers.
District Chapter 7 filings, which include many individuals, are at a pace just slightly below the 2005 rate, while Chapter 13 filings are far ahead.
Also, Chapter 11 filings, typically considered corporate filings, are already three times the number filed in 2005. Judge Paul Glenn, the chief bankruptcy judge for the Middle District, said recently that 31 percent of Chapter 11 filings now are by individuals, compared with 13 percent in 2005.
Bankruptcy attorneys have been saying that their clients face problems that include unemployment, foreclosures and real-estate investment losses as the economy emerges, but hasn’t strongly recovered, from the recession.
The national recession began in December 2007 and was declared over as of June 2009. University of Central Florida economist Sean Snaith said the recovery began later in Florida, during the first quarter of 2010.
“My firm is filing more bankruptcies this year than last. More seniors and high earners are filing bankruptcy,” said bankruptcy lawyer Edward P. Jackson, a director of the bankruptcy bar association.
“I guess the economy has a long way to go before it recovers,” he said.
Bankruptcy lawyer Jason Burgess, secretary of the bankruptcy bar association, notes that December is typically a slow month for most bankruptcy attorneys.
“Chapter 7 and 13 cases are normally slow because families are concerned with Christmas, family and travels. Chapter 11s are always slower because businesses start to see a little more money coming through their doors for the holidays and think that they may not need bankruptcy protection if they can just make enough this time of year,” said Burgess.
“Unfortunately, we normally see another upswing in mid to late January when people begin to realize how much they spent for the holidays and when businesses see that the relief was temporary,” he said.