Bankruptcies continue slide in Jacksonville and Middle District

News

As economic indicators generally improve, bankruptcy filings continue to decline in Jacksonville and the Middle District of Florida.

The number of bankruptcy filings in the 16-county Jacksonville Division of the federal Middle District of Florida fell 7.5 percent in the first quarter this year from 2011 and dropped 20 percent from the same period of 2010, which was a record year.

The number declined from 2,799 in 2010 to 2,415 last year and 2,233 this year.

There’s one obvious reason for the decline.

“The overall numbers are down because they had to be. There was no way to sustain the kind of bankruptcy numbers that we saw in the past two years and it was only natural that they would taper off,” said Douglas Neway, chair of the Jacksonville Bankruptcy Bar Association.

If filings in the Jacksonville Division continue at the first-quarter pace, filings could reach 8,932, which would be a 6 percent drop from 9,521 last year and a 22 percent fall from 11,439 in 2010.

With an even steeper decline, filings in the 35-county Middle District fell 13 percent in the first three months vs. the same period in 2011 and were down 27 percent from 2010.

First-quarter fillings dropped from 16,149 in 2010 to 13,596 last year and 11,805 this year.

Economic indicators continue to show improvements. For example, unemployment rates in Florida and in Jacksonville have dropped below 10 percent and are at the lowest rates in three years.

The national recession set in during December 2007 and was declared to have ended in June 2009, although economists said Florida, heavily dependent on real estate and tourism, emerged later.

Area bankruptcy attorneys said individuals and companies filed for relief under U.S. bankruptcy laws after the real estate market collapsed and the economy faltered.

Real estate investors couldn’t make payments; homeowners faced foreclosure; people lost jobs; and the cycle continued revolving through the economy.

Companies and high-wealth individuals sought protection to reorganize their debts under Chapter 11, while individuals turned to Chapter 13 for court-protected repayment plans.

Companies and individuals also turned to Chapter 7 to liquidate their holdings and start fresh.

“Consumer bankruptcy filings are tied closely to employment conditions,” said Kenneth Jacobs, Jacksonville managing shareholder of the GrayRobinson firm.

“Unemployment claims have continued to drop since the start of 2010, roughly the same time that unemployment began to inch back from historic highs,” said Jacobs.

“Unemployment in Florida is now at its lowest number in three years, and first-time unemployment claims are now at their lowest levels since 2008, when the recession began to gain steam nationally,” he said.

Jacobs said the improvement in job security has lessened the need for consumers to file bankruptcy because they are more capable of paying their creditors.

The Middle District covers more than half of the state’s 67 counties and its major commercial and population centers include Jacksonville, Tampa, Orlando and Fort Myers.

Those metro areas deal with different factors. Orlando is more highly affected by tourism than other areas, for example.

Except for Chapter 12 farmer and fishermen reorganizations, all other filings declined in the district this year from last year and 2010.

• The number of Chapter 11 reorganization filings by companies and high-wealth individuals declined by 42 percent from 2010 and 15 percent from 2011. They dropped from 250 to 170 to 144.

• Chapter 7 liquidation filings continue to dominate, representing 72 percent of the 11,805 filings in the district. They dropped to 8,506 in 2012, down 16 percent from 10,135 in 2011 and down 29 percent from 12,018 in 2010.

• Chapter 13 individual wage-earner reorganizations are the second most-filed, at 3,148, or 27 percent of filings. They fell to 3,148 in the first quarter, down 4 percent from 3,288 last year and down 19 percent form 3,872 in 2010.

Through March, there were seven Chapter 12 filings, up from two last year and down from eight in 2010.

However, a trend emerged in the first quarter with Chapter 13 filings.

The number of filings was down just 4 percent over the year, compared to double-digit drops of 16 percent in Chapter 7 filings and 15 percent in Chapter 11 petitions.

At the same time, they increased in the share of filings. Individual wage-earners filing for repayment plans grew to represent 27 percent of all filers, up from 24 percent in both 2011 and 2010.

Neway is the Chapter 13 Standing Trustee of bankruptcy court’s Jacksonville Division. He said Chapter 13 cases work only if the debt-consolidation plan is affordable.

“I think the improvement in the job market, not only in unemployment figures declining but the increase in hours for those who have been employed, gives debtors the income that they need to make a go of it in Chapter 13 and the option of consolidating and keeping their things is attractive,” he said.

He said the second reason for the larger proportion of Chapter 13 cases would be the implementation of a mortgage mediation program in the Tampa and Jacksonville divisions.

He said the Orlando Division has had the mediation program for more than a year.

“The feedback that we regularly heard was that there was always a different person at the lender’s office handling the applications and rarely was there anyone representing the mortgage lender who could approve the modification. So the bankruptcy judges agreed to adopt the mediation program to put the proper parties at the same table,” Neway said.

“No one is required to modify the loan. However, having the representatives with authority to modify loans in the same room with the earnest debtors wanting to save their homes tends to lead to greater success in modifying,” he said.

“This new option in Chapter 13 has led debtors to file Chapter 13 cases to try and modify the mortgages and keep their homes rather than file a Chapter 7 and surrender their homes back to the lenders,” he said.

Robert Heekin, secretary of the Jacksonville Bankruptcy Bar Association and a lawyer with Stutsman Thames & Markey, said the higher proportion of Chapter 13 filings could be an indication of optimism.

“It could certainly be taken as a sign that some people feel the worst of the real estate market correction is behind us,” he said.

“This, coupled with the decrease in the unemployment rate in Florida, may give rise to the hope that homestead residences can be ‘saved’ under the terms of a confirmed Chapter 13 plan,” he said.

Jacobs said consumers who are employed are more able to complete a Chapter 13 plan, in which they pay their creditors over time and protect their assets, as opposed to a Chapter 7 liquidation, in which all of their assets are used to satisfy their creditors.

“We expect this trend to continue through the remainder of 2012 as long as the employment picture continues to improve,” Jacobs said.

Bankruptcy attorneys said early this year, after the year-end numbers showed the year-over-year drop in filings from 2011 over 2010, that the record rate could not continue.

They cited improvements in the stock market, lower unemployment rates and other indicators.

However, they also sounded caution that the slowdown in foreclosures could pick up again as short-term loan modifications reach their maturity dates.

“As to the overall decline in filings, two things come to mind,” said Heekin.

“First, there is a finite number of people who can and should file for bankruptcy protection, so the significant number of filings the latter half of the last decade reduced that pool,” he said.

“Second, the slowdown in mortgage foreclosure prosecution due to the ‘robo-signing’ controversy may have contributed to an ease in pressure on those facing loss of their homes, whether investment or primary residences,” Heekin said.

Heekin also issued caution about the economy.

“There remains enough softness in the economy as a whole to be wary of any suggestion that there’s been a permanent reversal in overall filings,” he said.

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Bankruptcy filings

Jacksonville Division

U.S. Bankruptcy Court

Middle District of Florida