2010 Year-End Bankruptcy Report for Washington and the United States

Things are looking up in the bankruptcy world both in Washington State and across the country as people make fewer filings in the month of November. This is reflected in higher than expected consumer spending in December, a sign of the future for the 2011 chapter 11 bankruptcy numbers. Unemployment claims are also creeping down as workers take any job they can get (i.e. stealing jobs from immigrants) for fear of what the incoming conservative congress is going to do based on their campaign attacks on unemployed Americans, framing them as “deadbeats” and “leeches.”

Does this all translate to a stronger economy? Most likely no, because even though bankruptcy claims are coming down, they are still up from last year and the year before in a parabolic rise that seems to be unyielding. It’s as if the basement of the house was flooded and we are celebrating being able to wear waders rather than a scuba suit.

But there are things being done. December was not only a good month for retail, but the Obama administration also touched on the catastrophic changes made to the bankruptcy code in 2005 by a congress that was wholly owned and operated by the credit industry.

Obama Bankruptcy Changes

On December 23, the president signed a bill that made technical corrections to the Bankruptcy Code. The bill was not intended to make any substantive changes but only to correct drafting mistakes from the 2005 changes to the bankruptcy law. This is what we call in the bankruptcy world as “a start.” The fact that they are even looking at it shows at least some passive interest in changing the code back to its prior intent.

A change that concerns a larger number of Americans is changes to section 308. It imposes reporting requirements on “small business debtors,” which are business debtors with less than about $2.2 million in debt. Section 308′s reporting requirements in its original form could have applied to small business debtors outside of chapter 11, even to self-employed individuals in chapter 7 or chapter 13. The change now clearly limits section 308′s application only to chapter 11. Because outside of chapter 11 the section 308 reporting requirements would have little purpose other than to harass a debtor, this change is definitely for the better.

They also fixed the double negative in section 1112(b)(2). If “cause” was established, the original wording required the court not to dismiss or convert a chapter 11 unless unusual circumstances existed showing that dismissal or conversion was not in the best interests of creditors. The double negative meant dismissal should happen only when it was bad for creditors.

National Bankruptcy

Looking at the numbers, they suggest that bankruptcy filings in November fell steeply from the previous month, down to 115,000 from 130,000 in October, the lowest monthly filing total since February of this year. But lets put this into perspective, October is historically a very high month for bankruptcies, if not the highest. So year-to-date filings for 2010 are still 9% higher than last year’s, but as we suggested above, it indicates a slowdown.

According to the National Bankruptcy Research Center, located in the Columbia University School of Law, filings this year to date amount to about 6000 filings per million individuals, about 1 in every 160 people in the United States. A few states (mostly in the south east) already have begun to see rates fall where as some states continue to experience sharp increases, even by comparison to the elevated filing rates of 2009.

Filings in Hawaii are 32% higher than in 2009 and 25% higher in California, Arizona, and Utah. In contrast, despite the nationally noteworthy high filings in and near Memphis, and Tennessee’s place near the top of 2010 filing totals, filings throughout Tennessee have fallen 7% since last year.

Filings have fallen by lesser amounts in West Virginia, South Carolina, Iowa, Alabama, Mississippi, Kentucky, North Carolina, and Michigan. Of the two parts of the country where bankruptcy filings spiked most notably during the recession, one (the Southeast) is recovering rapidly while the other (the Southwest) is falling into further distress.

Washington State Bankruptcies

Most of the state had a rise in bankruptcies, some counties more than others. Both Kitsap and Skagit counties took a real hit for their populations, rising more than 40% above the national average. But it was the big counties, Whatcom, Snohomish, King, and Pierce that showed the most promise. Snohomish and King were in single digit rises between 3% and 3.5% where as Whatcom had a whopping 22% fall in bankruptcies as compared to the same time last year. Pierce had an 18% rise, but that could be due to the lower than expected number of bankruptcies in October, a notoriously heavy month.

This fairly good news is in spite of the rising foreclosure numbers and reports from local news sources and the real estate community that the housing prices have stagnated in even the historically higher equity growth areas such as downtown Seattle and Tacoma. They speculate this stagnation will remain for several more months — stretching into 2012 — and this has lead to fears of further foreclosures as unemployment benefits dry up and hiring remains sparse.

Chapter 7 Bankruptcies

Chapter 7 bankruptcy is the bankruptcy of choice for most Americans despite the 2005 congress trying to essentially drown it in the bathtub. It allows debtors to relinquish their assets and walk away. Their credit is severely effected and most likely they won’t qualify for a fair loan for a long time, but they are not longer being harassed or under threat of garnishment. This gives American families an opportunity for a clean slate with which to begin their lives again.

Chapter 13 Bankruptcies

Chapter 13 bankruptcy is the type that allows consumers to make a deal with creditors under a legal agreement overseen by a judge. They agree to pay a certain amount of money per month over a set amount of time based on their current income and the creditor agrees to lower the debt to a fraction of the balance. This balance is usually based on the balance without the exorbitant fees and meteoric interest rates added due to late payment or outright creditor greed.

Seattle Bankruptcy Lawyers Helping Families

Bankruptcy creates immediate relief and arranges debts together so that they are easy to understand. It offers a reasonable solution to a highly stressful financial situation. The best scenario is to capture your debt and situation prior to being in foreclosure so that you have a few more options, but this is not required. If saving your house is the priority, or just coming out from under a bad situation, then looking into your bankruptcy options is probably the best thing you can do for your peace of mind.

If you or someone you know are drowning under a sea of debt due to credit cards and foreclosure there may be a way to get relief and begin a life where you can fulfill your professional and personal needs. Call Phillips Webster for a consultation on you bankruptcy options.

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• Chapter 13 Bankruptcy
• Chapter 7 Bankruptcy
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