04 May 2010

Jacksonville-area bankruptcies hit a record high

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The following artcile written by Kevin Turner was published on May 4, 2010 in the Jacksonville Times Union.

Jacksonville area bankruptcy filings in March hit the highest level in more than four years, and local bankruptcy attorneys say it could get worse this year before it gets better.

According to U.S. Bankruptcy Court records for the Jacksonville division of the Middle District of Florida — serving Baker, Bradford, Citrus, Clay, Columbia, Duval, Flagler, Hamilton, Marion, Nassau, Putnam, St. Johns, Sumter, Suwannee, Union and Volusia counties — March bankruptcy filings in Jacksonville hit 1,186, ending a downward trend from 953 in September to 701 in January.

In April, filings dropped to 1,009.

Jacksonville foreclosure attorneys predict the spikes since March, not the drops since September, will be more common this year.

“April was the largest single month for bankruptcy filings in our firm since the eve of the bankruptcy law changes in October 2005,” said attorney Chip Parker of Parker & DuFresne , a law firm that handles foreclosures and bankruptcies.

Bankruptcy attorney Eugene Johnson of The Johnson Law Firm said both the decline and a spike in March are cyclical, and overall, bankruptcy filings in Jacksonville are going to go higher before they head down as a long-term trend. That’s due mainly to an increasing number of people forced into bankruptcy after exhausting their unemployment benefits, he said.

“If I had to guess, I would say bankruptcy filings will stay on an upward trend through the end of 2010,” he said. “That depends on unemployment and the home market.”

There were sweeping changes in the bankruptcy law in 2005, making liquidation of personal assets and debts more difficult to qualify for. However, over the last few years, there have been seasonal spikes in unemployment filings and recent highs are beginning to rival pre-2005 levels.

Johnson said it’s common to see more filings in the spring, because people who need to declare bankruptcy usually lack the $1,200 to $3,500 in attorney fees and use their tax returns to pay for it.

“You’re going to see a lot of filings in March, April and May,” he said.

For those who are out of work and have no savings to fall back on, using credit cards to get by creates its own unmanageable debt before long and the need for a fresh start can come at any time, Johnson said. Without a reliable source of income, unemployment can lead to bankruptcy if a person can’t find a job within a year, he said.

Lansing J. Roy, bankruptcy attorney and founder and president of his own law firm, said they receive eight to 14 new bankruptcy filings every day.

“A lot of it is real estate related,” Roy said, “and a lot of it is job-loss related.”

The resultant financial stress can be hard on married couples, he said.

“Some people who come in, I can take a look and say, ‘You want a bankruptcy and a divorce,’ and it’s just a question of what order,” he said.

People file for different types of bankruptcies depending on their financial condition. People unable to pay 25 percent of their credit debt with their disposable income may opt for Chapter 7 bankruptcy, which liquidates certain assets and wipes out debt. People who have too much disposable income to qualify for Chapter 7 can opt for Chapter 13, in which they pay a trustee who pays debts on a plan. People with more than $1 million in home mortgages and rental properties can’t qualify for Chapter 13, so many are opting for Chapter 11, a reorganization plan typically favored by companies that seek bankruptcy but want to stay in business, Johnson said.

Bankruptcies are a lagging indicator of the economy, he said, and won’t begin to wane until other indicators get better.

“Everything I read and see says the trend is going to head upward,” Johnson said. “It’s a convergence of adjustable rates in the housing market, dropping values and rising rates on credit cards.”

Roy, 70, said he had plans to retire, but put them on hold due to his firm’s caseload.

“I’ve never seen anything like this,” he said. “Nothing like it in 40 years. It’s a mess.”