Bankruptcies keep pace with economic downturn

Bankruptcy laws help people who can no longer pay their creditors to get a fresh start by liquidating their assets to pay their debts, or by creating a repayment plan.

"It's an unfortunate state of the economy that we've been busy," observed Nancy Dickerson, chief deputy clerk for the U.S. Bankruptcy Court, District of Arizona.

Despite hopes that the number of bankruptcies might start tapering off, that hasn't happened, she said. "Unfortunately, it's a rising trend. It's still going up."

And while there are a number of factors that may lead a person to file for bankruptcy, loss of jobs "is certainly one correlation," Dickerson said.

In fiscal year 2009, a total of 1.4 million bankruptcy petitions were filed in the U.S. courts, an increase of 35 percent from 2008 and the largest number of bankruptcy filings in any fiscal year since 2005, when the bankruptcy law was changed.

The increase in bankruptcies in the Yuma Division is considerably more startling.

"There was a 72 percent increase from 2008 to 2009 in the Yuma Division," Dickerson said. In 2009, nearly 2,000 bankruptcies were filed in the division.

It's hard to say exactly how many of those bankruptcies involved Yuma-area individuals and businesses as the Yuma Division includes La Paz and Mohave counties as well as Yuma County, Dickerson said.

But a goodly portion of those filings likely were in Yuma.

Certainly enough to keep attorney Robert Friedman busy. "Ninety percent of what I do now is bankruptcies," he said.

"Obviously, because of the economy it's going up as more people are out of jobs. I see a direct link between the number of bankruptcies and the loss of jobs."

And even if a person is still employed, it could be that one person in a two-wage earner household was laid off or a worker's hours were reduced, said Friedman. Or perhaps a family got hit with large medical bills.

"They start getting late on their house payment and credit cards."

Add in that credit card companies "aren't the most amenable to work with right now. They don't seem to care if people file bankruptcy. That's very stupid as they end up with nothing."

This is the worst he's seen since he began practicing in 1978, he said.

He saw the number of bankruptcies increase in the 1980s, then go down in the 1990s. Friedman again saw a upward trend in the early 2000s.

In 2005, the number of filings exploded to 2,254 in the Yuma Division because of the change in the bankruptcy law in October of that year, Dickerson noted.

The following year, there were only 306 filings in the Yuma Division, according to statistics on the U.S. Bankruptcy Court, District of Arizona Web site at www.azb.uscourts.gov.

From there, it's been a steady climb. In 2007, the number had increased to 595, then to 1,144 in 2008 and 1,969 in 2009.

From Jan. 1 to March 31 of this year, there were a total of 500 filings in the Yuma Division, Dickerson said. Of those, the vast majority - 456 - were Chapter 7 liquidation filings by individuals.

In March alone, there were a total of 206 filings, including 187 Chapter 7s, two Chapter 11s and 17 Chapter 13s, she said.

"Most consumer cases are Chapter 7," she said. That's when a trustee is appointed to liquidate a debtor's assets to pay off creditors.

Exemptions vary from case to case, but if a person is current on mortgage and car payments, they may be able to keep their home and vehicle, Dickerson said.

"Banks really don't want to own homes and cars," she said.

If someone is in financial trouble, Dickerson encourages them to visit www.azb.uscourts.gov for information about bankruptcy "as a last resort or another option in their financial planning."

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DIFFERENCES BETWEEN CHAPTERS

• Chapter 7 is often called the "liquidation chapter." It is used by individuals, partnerships or corporations who have no hope for repairing their financial situation. Under liquidation, the debtor's non-exempt property is sold for cash by a trustee and the cash is distributed to creditors.

• Chapter 11, often called the "reorganization chapter," allows corporations, partnerships and individuals to reorganize without having to liquidate all assets. In filing Chapter 11, the debtor presents a plan which, if accepted by the creditors and approved by the court, will allow the debtor to reorganize personal, financial or business affairs and again become financially productive.

• Chapter 13 may be filed by an individual with a regular income who is overcome by debts but believes such debt can be repaid within a reasonable period of time. The debtor files a plan to pay a certain percentage of future income to the Bankruptcy Court for payment to creditors and will be under the court's protection while repaying such debts.