Bankruptcies soaring with 'no end in sight'


POSTED: Tuesday, April 14, 2009

RALEIGH, N.C. » The number of U.S. businesses and individuals declaring bankruptcy is rising with a vengeance amid the recession, despite a 3-year-old federal law that made it much tougher for Americans to escape their debts, an Associated Press analysis found.

“;There's no end in sight,”; said bankruptcy lawyer Bryan Elliott, of Hickory, N.C., who is working seven days a week and scheduling prospective clients a month in advance. “;To be doing this well and having this much business, it is depressing. It's not a laugh-a-minute job.”;

Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records. Last month, 130,831 sought bankruptcy protection — an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.

Bob Lawless, a professor at the University of Illinois College of Law, said bankruptcies could reach 1.5 million this year and level off at 1.6 million next year — around the same time economists expect a recovery to begin.

Congress voted in 2005 to make bankruptcy more cumbersome after intense lobbying from lenders, who complained that people were abusing the system. The tighter requirements initially appeared to work, with bankruptcies plummeting from a record-shattering 2 million cases in 2005 — a total that reflected a rush to file before the new law took effect — to 600,000 in 2006. But bankruptcies are now booming.

“;You wouldn't get this large of a rise without serious problems in the economy,”; said Lynn LoPucki, a UCLA law professor who researches bankruptcy.

In the past 12 months, about four people or businesses for every 1,000 people in the country filed for bankruptcy, according to the AP analysis. That is twice the rate in 2006, and close to the average of about five for every 1,000 in the decade leading up to the change in the law.

Bankruptcy is considered a lagging economic indicator, since it is generally a last resort. The filings compiled by the AP illustrate the places where the recession has hit hardest.

In March, bankruptcy filings jumped the highest across the West. In Arizona, filings rose 91 percent from a year ago. They were up 84 percent in Idaho, 82 percent in California and 79 percent in Nevada, though those were trumped by Delaware, home to many large corporations, which saw a 127 percent jump.

Emory Clark, an Atlanta bankruptcy attorney who has been in the business for 25 years, said he is seeing more affluent people, many who have lost their jobs.

“;There's something about human nature or American culture, but people hate filing for bankruptcy,”; Clark said. “;It really is a stamp of failure. Nobody wants to come in here and pay us money to file. They are forced in because of circumstances.”;


Surge in bankruptcies by state

A look at bankruptcy filings by the top 10 states and their growth in the past year:

StateMarch 2009March 2008Change
1. Delaware479211127%
2. Arizona2,7001,41491%
3. Idaho68237184%
4. California16,9179,30882%
5. Nevada2,5101,40579%
6. Utah1,39680474%
7. Hawaii 27015871%
8. Montana26815771%
9. Washington2,9101,74567%
10. Florida8,3225,14662%