Managing Editor
January-April filings continue upward trend
With a third of the year over, predictions by lawyers held true that bankruptcy filings would continue to rise.
In the U.S. Middle District of Florida, Chapter 7 liquidations dominate the docket, accounting for 75 percent of all bankruptcy filings in the district, which covers the major metro areas of Jacksonville, Orlando and Tampa.
Jacksonville lawyer Gardner Davis said Chapter 7 is predominantly used by people rather than companies. “Almost all Chapter 7s are for individuals,” he said.
Add in Chapter 13 wage-earner plans, which he said also are filed predominantly by individuals, and it becomes overwhelmingly clear that people, rather than companies, are seeking bankruptcy protection in the greatest numbers.
“People with incomes have lost their jobs or suffered cuts in income, they can no longer access money through refinancing their house and they no longer have equity in their house to protect,” said Davis, a partner with Foley & Lardner in Jacksonville.
Chapter 7 is a liquidation of assets. Debtors can keep some exempt property, while the remainder is liquidated and distributed to creditors.
“Under Chapter 7, the debtor immediately puts the debts behind,” said Davis.
McGuire Woods lawyer Sara F. Holladay-Tobias said businesses that seek liquidation instead of reorganization under Chapter 11 do so because “liquidation allows companies and investors to pay debts and absolve themselves of ongoing financial burdens in this uncertain economy.”
With Northeast Florida’s unemployment rate hovering at 12 percent and job creation remaining slow, bankruptcies are expected to continue.
“I think we have at least another six months of difficult economic times, and therefore, I expect individual bankruptcy filings to continue to rise,” said Davis.
Holladay-Tobias said business bankruptcy filings also are likely to continue throughout 2010.
“This is because many businesses have now run out of available credit or have now reached debt amounts they are unable to pay down because income has not kept up with rising debt as consumer spending remains low and uncertain,” she said.
The U.S. Bankruptcy Court for Florida’s Middle District contains about 10 million of Florida’s 18 million residents, according to the court.
It contains 35 of the state’s 67 counties, including several of the state’s largest metro areas, including Jacksonville, Tampa Bay, Orlando, Ocala, Daytona and Fort Myers.
The Jacksonville division consists of Baker, Bradford, Citrus, Clay, Columbia, Duval, Flagler, Hamilton, Marion, Nassau, Putnam, St. Johns, Sumter, Suwannee, Union and Volusia counties.
Districtwide:
• Total bankruptcy filings spiked 18 percent during the first four months, compared to last year, and were five times the pace of 2006.
• Chapter 7 liquidation filings rose 21 percent over the year to 16,659, seven times the rate of 2006.
• Chapter 13 individual repayment plans rose 7 percent to 5,293, three times the rate of 2006.
• Chapter 11 corporate reorganizations almost doubled over the year to 316 and were nine times the rate of 2006.
In the district’s Jacksonville division, overall bankruptcy filings, including all chapters, rose almost 8 percent over last year, following a first-quarter rise of 10 percent.
Filings in the Jacksonville division rose to 3,822 in the first four months, the highest since 2005, before bankruptcy laws were changed to make it harder to file.
The filings were three times the pace of the same period in 2006, before the recession began.
Davis also provided information from 2009 that shows:
• The U.S. Middle District Court in Florida ranked No. 2 in the country in total bankruptcy filings, behind Central California.
• The district ranked No. 4 in Chapter 11 filings, behind Southern New York, Delaware and Central California.
“I think the level of filings is directly linked to the region’s dependence on homebuilding before the recession and the bubble in housing prices and related consumer borrowing against increased real estate values,” he said.
He also shared information from the 2008 Florida Consensus Estimating Conference. It showed a steep drop in annual general revenue receipts from documentary stamp taxes, from $1.6 billion in 2004-05, the peak of the real estate boom, to $170 million in 2009-10.
The tax is collected on real estate deeds and real estate mortgages and is calculated as a percentage of the value of the property for a deed and as a percentage of the debt with a mortgage, he said.
“Most of those transactions reflected by the doc stamps directly translate into jobs and income, such as the construction workers who built the house or the mortgage broker who wrote the mortgage,” said Gardner.
January-April bankruptcy filings
Jacksonville Division U.S. Bankruptcy Courtm Middle District of Florida
Source: U.S. Bankruptcy Court
January-April 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
356-2466