Managing Editor
Bankruptcies reflect continuing struggles
If bankruptcies continue at their pace of the first five months, district filings in 2010 will surpass those of 2005, the year laws were changed to make the process more difficult.
From January through May, 28,057 bankruptcy petitions were filed in the U.S. Bankruptcy Court of the Middle District of Florida.
At that rate, more than 5,611 a month, the district could be hit with 67,337 filings for the year.
“It’s just amazing the number of people that are struggling,” said lawyer Jerrett McConnell, president of the Jacksonville Bankruptcy Bar Association, which has more than 200 members.
“The housing market is what is driving it and what we are seeing is, across the board, there is a lag effect of economic woes,” said McConnell, a partner in Friedline and McConnell.
The potential filing rate this year exceeds the 63,778 in 2005, before revisions restricted filings, and the 61,690 last year, the record since the changes.
In the Jacksonville division, people and companies filed 4,819 bankruptcy petitions January through May, up 7 percent from the first five months of 2009.
At that rate, Jacksonville’s division could see 11,566 filings for the year, up 4 percent from 2009, but below 2005.
McConnell expects a large number of filings for the next couple of years.
“The first people we saw filing bankruptcies were people involved in the construction industry. Then we saw the contractors themselves start to file bankruptcy, and the real estate brokers,” said McConnell.
“And now we are seeing the upper echelon people who had cash saved up and have used their savings and they have no choice but to file bankruptcy,” he said.
“It’s been interesting to watch the progression through the classes. Now I am seeing the corporate owners and the accountants.”
McConnell said his practice has experienced “a tremendous increase in the number of people coming in, but the biggest increase is in the upper class - accountants, doctors, people who would have been considered, five yeas ago, wealthy.”
Those are folks making $250,000 a year or more and many of those he sees have substantial real estate holdings.
“With a downturn in the market, they can’t find renters for their properties or are having lines of credit pulled,” he said.
“They can’t keep the ball rolling, so to speak,” he said.
McConnell also said there’s more to come. “We have not seen the bottom of the commercial real estate market and that is next,” he said. He expects that market to hit bottom in six months to a year.
As governments wrestle with raising taxes and cutting jobs, McConnell said either or both will affect people by forcing them to pay more in taxes while possibly losing their jobs or program assistance.
The Middle District covers 35 of the state’s 67 counties and includes Jacksonville, Tampa Bay, Orlando, Ocala, Daytona and Fort Myers.
The district’s Jacksonville division consists of 16 counties in North Florida: Baker, Bradford, Citrus, Clay, Columbia, Duval, Flagler, Hamilton, Marion, Nassau, Putnam, St. Johns, Sumter, Swuannee, Union and Volusia counties.
In the Middle District, the majority of filings, 75 percent, are Chapter 7 liquidations, followed by Chapter 13 personal repayment plans and Chapter 11 corporate reorganizations.
McGuireWoods lawyer Sara F. Holladay-Tobias said Chapter 7 liquidations have taken off because while the 2005 Bankruptcy Code revisions directed more consumers into Chapter 13, the current economic conditions are guiding more toward liquidation.
“With national unemployment hovering around 10 percent, more people are unemployed and as a result, when consumers run out of available credit, they no longer have the income requiring them to enter Chapter 13 and are forced to enter liquidation,” she said.
“With regard to businesses, lenders still do not have an appetite for lending to troubled businesses. As such, when businesses enter bankruptcy, they are forced to liquidate assets as there are no longer as many lines of credit available with which to restructure,” she said.
In the Jacksonville division, close to 1,000 bankruptcies were filed in May, according to the court. That’s up by 50 from May 2009 and three times the number of May 2006.
However, May’s 997 filings were below the March and April numbers - more than 1,000 each month - but above January and February.
“There are a lot of people who are trying to just weather the storm,” said McConnell. He said people typically try to avoid filing.
“We are a bankruptcy firm, but if we can keep you out of bankruptcy, we are going to explore those options with you first. We see a lot of people who are holding out hope,” he said.
January-May bankruptcy filings
Jacksonville Division, U.S. Bankruptcy Court, Middle District of Florida
Source: U.S. Bankruptcy Court
January - May filings
Middle District of Florida, Jacksonville, Orlando, Tampa
Chapter 7 - Liquidation
Chapter 11 - Corporate reorganization
Chapter 12 - Farmer, fisherman reorganization
Chapter 13 - Individual, wage-earner reorganization
Chapter 15 - Insolvency involving more than one country
Source: U.S. Bankruptcy Court
356-2466