Bankruptcy Attorneys

Americans filed for personal bankruptcy at a record pace this year.

The number of new personal bankruptcies nationwide rose 7.8 percent to 1, 625,813 from 1,508,578 for the year that ended Sept. 30, according to the Administrative Office of the U.S. Courts. In the Northern District of California, which includes the Bay Area, personal bankruptcies were up 11.4 percent to 21,651 from 19,442 over the same period.

While the national numbers represent an all-time high, the Northern California numbers fall short of the region’s record of 32,113 individual bankruptcy filings in 1997. Nationally, bankruptcy filings, including both business and personal, have almost doubled since 1994.

The moribund economy, the unemployment rate — particularly the fact that people are going jobless for longer periods of time — and the increased availability of easy credit all fuel the trend. In the Bay Area alone, more than 300,000 jobs have been lost since March 2001. Bankruptcy filings tend to lag other economic indicators, so they do not yet reflect the tentative signs of recovery.

“The credit card companies are darn lucky it’s not more than that,” said Norma Hammes, a bankruptcy attorney with Gold & Hammes in San Jose and past president of the National Association of Consumer Bankruptcy Attorneys. “They’re the ones feeding this, along with people being unemployed and people losing their health insurance.”

Meanwhile, Congress is looking at revising the bankruptcy laws to make it harder for people to start over with a clean slate.

In March, the House passed legislation that would create an income limit to force more debtors into Chapter 13 bankruptcy, which requires more repayment of debt. The White House has already endorsed the measure, but it’s expected to face a more difficult fight in the Senate, where it won’t be considered until after Thanksgiving.

“I think (the proposed law) would be an absolute disaster,” said James Pixton, an Oakland bankruptcy attorney. “It makes a huge number of people ineligible for Chapter 7 bankruptcy, which wipes (debts) out; the only option would be Chapter 13, where you make monthly payments. The problem is a lot of these people can’t make any payments; the money just isn’t there. We’d be left with a whole bunch of people who have no remedy for their debt situation.”

Credit card companies, banks and retailers all back the bankruptcy overhaul, which has failed to make it through Congress numerous times since 1997. They say that American families end up paying a “hidden tax” of $400 each through higher interest rates to make up for the debts that aren’t repaid.

Bankruptcy attorneys say that the U.S. Trustee is already trying to make it tougher for people to file for Chapter 7, in which their debts are wiped out.

“The U.S. Trustee’s office has stepped up enforcement of some provisions that were always there,” said San Francisco attorney Iain Macdonald. “If you have enough disposable income — income over liabilities — that would let you make some payments to creditors, they consider that an abuse and will move to dismiss your case and pressure you to file Chapter 13 where you make some repayment on your debt. There’s quite an increase in that.”

Macdonald said his client base shows that “the dot-com fallout is still with us. A lot of people lost jobs, a lot of companies collapsed. When a business collapses, it pulls people down with it.”

Oakland resident Lloyd Scott, a receptionist at a law firm, said bankruptcy came to the rescue after his 1996 divorce turned acrimonious and he was left holding the bag for a joint credit card debt of $10,000.

“I felt really embarrassed, but I knew it was the only means I had,” he said.

“I’m glad I did it and it’s over with.”

Social stigma about bankruptcy is still a potent factor, attorneys said.

“There are a heck of a lot more people who need bankruptcy relief out there than are filing,” Hammes said. “People do everything they can not to file.”

Personal bankruptcies represent the lion’s share of bankruptcy filings, accounting for 97.8 percent of all filings nationally.

Business bankruptcies continue to decline, both nationally and locally.

The number of U.S. business bankruptcy filings fell 7.4 percent for the 12 months ended Sept. 30, to 36,183 from 39,091. In the Northern District of California, business filings were down 13.2 percent to 1,109 from 1,277.

This entry was posted on Monday, February 25th, 2008 at 6:34 am and is filed under Bankruptcy, Bankruptcy Attorney. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.