District bankruptcies fall 29% from 2010 peak

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Fewer people and companies are seeking relief in bankruptcy so far this year in Jacksonville and in the Middle District of Florida.

As of the year’s midpoint, at least 240 fewer individuals or organizations are filing each month in the Jacksonville Division of the U.S. Bankruptcy Court Middle District of Florida, according to court statistics.

The Jacksonville monthly average has fallen from 979 in 2010, the record year for district filings, to 825 last year to 737 this year.

“It is heartening to see that bankruptcies are declining. It means that more families and businesses are weathering our current economic storm and living within their means,” said Dawn Lockhart, president and CEO of Family Foundations of Northeast Florida, a nonprofit that provides credit counseling and other services to consumers.

Lawyer Ellsworth Summers, president of the Jacksonville Bankruptcy Bar Association, said it was no surprise that filings dropped.

“It was impossible for the pace to remain at what it was in 2009 and 2010,” he said.

Summers, a shareholder with the Rogers Towers law firm, said filings might increase, however.

“Many individuals and businesses have been able to hold on this far, but without significant improvement in the economy, they won’t be able to hold on forever. Eventually, they will have to file,” he said.

Bankruptcy attorney Ed Jackson of the Edward P. Jackson, P.A., practice, a board member of the bankruptcy bar association, views it two ways.

“The reduced rate of bankruptcy filings means that most people who need bankruptcy have already filed, but it could be a sign better times are on the way,” he said.

As the economy turns

Bankruptcies soared to a record in 2010 as the national, state and local economies struggled through what has been called the deepest recession since the Great Depression.

The U.S. recession began in December 2007 and emerged three years ago in June 2009, although Florida’s downturn is widely viewed to have lasted until at least early 2010.

Florida’s heavy economic dependence on housing and tourism, both hit hard by downturns, led to lingering sluggishness around the state.

The Middle District of Florida encompasses 35 of the state’s 67 counties and covers the major metropolitan areas of Jacksonville, Orlando, Daytona, Tampa and Fort Myers.

The Jacksonville Division covers 16 North Florida counties.

At the year’s midpoint, the number of district bankruptcy filings has fallen almost 15 percent from last year and plunged more than 29 percent from 2010.

In the Jacksonville Division, filings are almost 11 percent below last year and down almost 25 percent from 2010.

Attorney Mark Mitchell, also a shareholder with the Rogers Towers firm and chairman of the bankruptcy bar association, said the economy has been improving, although not at a fast pace.

“Over the past couple of years, unemployment has gone down, GDP growth has risen and the stock market has experienced meaningful gains,” said Mitchell, referring to business indicators, including the gross domestic product measure of the value of economic production.

“Given the surge of bankruptcy filings in recent years, together with the modest improvement in economic conditions, it isn’t surprising that bankruptcy filings have fallen from the record-setting pace of 2009 and 2010,” Mitchell said.

Should filings remain at the six-month pace, the Middle District could end the year with about 48,150 bankruptcy petitions, down 10 percent from last year’s total and almost 28 percent from the year before.

There were 66,618 bankruptcies filed at the peak in 2010.

Among the Middle District filings for the first half of the year compared with 2011:

• Chapter 7 liquidations were down 18 percent, while accounting for about 73 percent of all filings, a lower proportion than the 75 percent last year. Businesses and individuals use Chapter 7.

• Chapter 11 reorganizations fell about 10 percent. While dominated by businesses, high-wealth individuals also seek protection under the chapter.

• Chapter 13 wage-earner repayment plan filings were down 4.2 percent and accounted for 26 percent of all filings, a higher proportion than 23 percent last year.

Bankruptcy Judge Paul Glenn in the Middle District said last year that as the recession began in late 2007, the court saw filings by real-estate 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 could no longer carry the debt because they can’t sell the properties or make enough rental income from them.

Records show that economy hotels then began filing, as well as restaurants and other businesses.

“Unemployment is still relatively high at roughly 8 percent and the residential and commercial real estate markets continue to struggle,” Mitchell said.

Mitchell said a recent weaker-than-expected national jobs report shows signs of diminished economic activity.

“The softening in recent data may also reflect the uncertainties of domestic policy and global economic sluggishness, so concerns remain regarding the long-term economic recovery,” he said.

“The bottom line is that many individuals and small businesses continue to struggle and foreclosure filings continue. Until we see greater improvement in unemployment and real estate, I suspect that bankruptcy filings will remain relatively high, though not at the levels immediately following the economic crises,” Mitchell said.

‘Extend and pretend’

Rob Heekin, treasurer of the bar association and a lawyer with the Stutsman Thames & Markey firm, compared the decrease in bankruptcy filings to the decline in home sales.

“As fewer and fewer people need or are otherwise able to file for bankruptcy relief, the ‘pool’ of available filers decreases,” Heekin said.

“What in the housing market translated to a drop in sales and ultimately prices when the pool of potential purchasers decreased, in the bankruptcy context you have a drop in the number of overall filings, as those who filed already have removed themselves from the segment of the population for whom bankruptcy is available and makes sense,” he said.

Heekin said another factor is that lenders have been more willing to coordinate “amicable and sensible resolutions to borrowers’ problems.”

“In the case of a potential bankruptcy filer whose credit issues may be isolated to a couple of lenders, this has led to an increase in loan modifications or workouts rather than forcing the debtor to file for relief,” Heekin said.

Mortgage foreclosures, another factor in the record number of filings, were stemmed when some lenders were discovered using “robo-signers,” meaning some lenders were processing actions without the proper signatures.

Bankruptcies were expected to rise once those problems were resolved and the foreclosures would proceed in court.

“We remain in a stagnant pattern regarding foreclosures,” said Heekin.

“While there has been a marked increase in foreclosure filings since the purported resolution of the ‘robo-signing’ controversy, most of those cases remain in their infancy in state court, so debtors are not yet feeling the sense of fiscal urgency that a pending foreclosure sale brings,” he said.

He also said that the number of homes and commercial loans in default, “or, as some would say ‘extend and pretend,’ leads us to believe that we’re not quite out of the woods yet in terms of the overall number of filings.”

Summers said loans made in late 2006 and into 2007 won’t reach maturity until this year or 2013.

“Eventually, that batch of loans will mature and must be paid in full. It is likely that we haven’t even seen these loans in foreclosure suits or bankruptcy cases,” he said.

“And keep in mind, the presidential election in November will also have a role in the economic recovery, and thus, the bankruptcy filings in the Middle District of Florida,” Summers said.

Heekin said the instability in the housing and job markets along with uncertainty with the presidential and congressional elections suggests that the drop in bankruptcy filings could level off.

He said he sees the potential for an increase if the economic recovery lapses.

“Individual responses to debt issues often lead to emotional and sometimes irrational decisions when it comes to seeking relief,” Heekin said.

“Now more than ever, those who find themselves in a tenuous financial position should seek counsel concerning their options for asset protection under Florida law, both inside and outside bankruptcy,” he said.

Lockhart at Family Foundations said her organization has work to do with consumers, considering that statistics show half of all adults do not have a budget and a third say they are not paying their bills on time.

She said Family Foundations provides pre-filing counseling to people seeking bankruptcy protection.

Lockhart said the counseling focuses on helping individuals understand the options available outside of bankruptcy.

She said the organization also provides pre-discharge bankruptcy education “so that individuals can immediately start to re-build their credit” once they emerge from a bankruptcy.

“Everyone can be more wise about money. Financial education is one of the best tools available for individuals, families and businesses to face their financial future with more understanding and confidence,” Lockhart said.

District ranks high in U.S.

Summers notes that the Middle District of Florida continues to rank in the top three or four districts nationwide for bankruptcy filings, trailing the Los Angeles and Chicago areas.

U.S. Bankruptcy Court statistics show that in the 12 months of April 2011-March 2012:

Total filings: The Middle District of Florida was No. 3; Central California was No. 1 with 128,145 filings; Northern Illinois was No. 2 at 58,346 filings; the Middle District recorded 51,748 filings.

Chapter 7: No. 1, Central California, 95,113 filings; No. 2, Northern Illinois, 42,618; No. 3, Middle District of Florida, 38,285.

Chapter 11: No. 1, Central California, 1,121; No. 2, Southern New York, 626; No. 3, Delaware, 600; No. 4, Middle District of Florida, 557.

Chapter 13: No. 1, Central California, 31,898; No. 2, Northern Georgia, 22,017; No. 3, Northern Illinois, 15,388; No. 4, Middle District of Florida, 12,884.

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@MathisKb

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Jacksonville-June bankruptcy filings

Jacksonville Division

U.S. Bankruptcy Court

Middle District of Florida

Year	Six-month filings	Annual
2012	4,419	8,838 (pace)
2011	4,947	9,521
2010	5,874	11,439
2009	5,481	11,144

Source: U.S. Bankruptcy Court

January-June bankruptcy filings

Middle District of Florida

Chapter	2009	2010	2011	2012	ranking
Chapter 7	21,537	25,458	21,289	17,441	3
Chapter 11	308	440	312	281	4
Chapter 12	11	15	9	11	–
Chapter 13	7,616	8,190	6,616	6,341	4
Chapter 15	0	1	1	0	–
Totals	29,472	34,104	28,227	24,074	3